Nationstar: A Multi-billion Dollar Settlement over Foreclosure Practices Waiting to Happen

Anyone who has sufficient experience following homeowners through the foreclosure and loan modification processes will tell you that if there were a Worst Mortgage Servicer Contest, the most difficult servicer to work with when seeking an alternative to foreclosure would be awarded to Wells Fargo… with HSBC coming in a close second.

FIRST PLACE: Wells Fargo 

As part of the National Mortgage Settlement reached in early 2012, Wells Fargo was ordered to provide its borrowers with $900 million in payment relief through refinances, $3.4 billion in principal reductions and short sale programs that forgive deficient balances, and $1 billion to compensate borrowers who were treated improperly while in foreclosure between 2008 and 2011.

Now, please understand… I’m not here to debate the relative inadequacy of the settlement, nor am I here to complain about the dearth of prosecution for wrong doing related to foreclosures and/or the meltdown of the housing market.  At this point, both of those arguments have been made by me and countless others.

The only point I want to make at the moment is that being ordered to pay $1 billion to your borrowers who were in foreclosure between 2008 and 2011, only occurs because you did a lot wrong and caused significant harm to those people during those years.  You may say that it’s not be enough to adequately compensate the people Wells harmed during those years, but it’s still $1 billion… and no one is ever ordered to pay $1 billion for doing things correctly.

So, I wasn’t the least bit surprised to read about a lawsuit against Wells Fargo that was recently certified by the court to proceed as a class action in California.  In that case plaintiffs are alleging that Wells Fargo did not keep the promises it made to homeowners related to modifying their mortgages and that the bank delayed the approval process so long that homes were sold at auction, etc. etc. etc.

I promise you that no one in the country with experience in this area would have been surprised to hear those sort of allegations brought against Wells Fargo, because it’s far from being a secret that Wells Fargo almost never approves modifications, nor does the bank often explain why an application for modification has been denied. 

I’ve seen Wells refuse to modify loans that I am certain others would approve so many times, that if Wells Fargo serviced my mortgage, I don’t think I’d even bother trying to get my loan modified.  I honestly think that knowing what I know today, I’d prefer moving into a van down by the river… to going through the loan modification process at Wells Fargo… or HSBC, for that matter.

SECOND PLACE: HSBC

Knowing that HSBC is second only to Wells in terms of being horrible to work with when trying to avoid foreclosure, I also wasn’t the least bit surprised to learn of HSBC’s recent $470 million settlement with the federal government, 49 states and the District of Colombia over its foreclosure practices.

The HSBC settlement breaks down as follows…

A) $100 million to be paid in cash.  Of that amount $59.3 million will be paid to homeowners who lost homes to foreclosure between 2008 and 2013, after HSBC refused to modify their loans or seek alternatives to foreclosure.  California’s Attorney General Kamala Harris says she thinks California will be eligible for 10 percent of that fund… or just under $6 million.

B) $131 million to the Federal Reserve to settle claims over “deficiencies in residential mortgage-loan servicing and foreclosure processing.”

C) $370 million in “consumer relief,” as opposed to cash… which presumably means that going forward HSBC will be expected to provide loan modifications and/or other alternatives to foreclosure to borrowers totaling that amount.

A Justice Department statement also said that in addition to the money required by the settlement, the bank will be “required to reform its practices, and an independent monitor will be installed to oversee the changes.”

And again… no surprise here.  I’ve been hearing from homeowners at risk of losing their homes to foreclosure since 2008… and from the beginning, I would have told you that HSBC is a real horror story when it comes to applying for a loan modification, short sale, or other alternative to foreclosure. 

The only thing that’s the least bit surprising about HSBC recently agreeing to settle claims related to their foreclosure practices is that it took this long for the Justice Department to get around to going after them.

A special achievement award goes to Nationstar Mortgage… for winning the race to the bottom.

Just when I started to think that no servicer today could possibly hope to handle foreclosures and loan modifications any worse than Wells Fargo or HSBC has… here comes Nationstar, a servicer seemingly dedicated to reaching new lows.

Over the last week alone, I’ve been contacted by three totally unrelated homeowners who are all currently living through their own Nationstar nightmares.  Not that these three were the first complaints I’ve ever received about Nationstar’s attitudes and abilities related to modifying loans… no, there have been plenty that have come before the three homeowners that contacted me last week.

What made these three homeowners stand out was just how badly Nationstar was handling things in all three cases.  It was the sort of treatment, incompetence and callousness reminiscent of 2009, 2010 or 2011 and I had hoped those days were finally behind us, with the exception of Wells Fargo and HSBC, that is.

I mean, back in 2009 – 2011, banks were all losing loan modification paperwork so many times that I had to wonder how they managed to keep from losing billions in paper currency every day.  Back then, every single bank was a nightmare to deal with when it came to preventing foreclosures and modifying loans… every last one of them.

By 2012, however, things finally started to improve at least in the sense that more and more loans were being modified… more short sales were being approved… and we finally seemed to fix the disappearing paperwork problem.  I’m not saying that anything was going swimmingly, but there was definitely some significant improvement in how loan modifications were handled at most servicers.

Today, we have servicing standards that have been codified at the federal level into the Truth in Lending Act, for example, and into various state laws, such as California’s Homeowner Bill of Rights.  Today, we have the Consumer Financial Protection Bureau along with various home preservation groups in various states.  And today, the courts are far more receptive to being suspicious and critical of banks accused of causing foreclosures, as opposed to preventing them.

I remember when Nationstar appeared on the scene seemingly out of nowhere.  Just when I was getting somewhat comfortable with the loan modification process at Bank of America, Chase, One West and Ocwen… all of a sudden there were new and previously unknown servicers being given the responsibility for modifying literally millions of loans.

It was a rocky transition to be sure.  Homeowners who were smack dab in the middle of the loan modification process at Bank of America, for example, now found that they had to start all over again now that their loan had been “serviced released” to Nationstar.  It didn’t seem fair, but I wasn’t sure I had a better answer to the problem of big banks simply servicing too many defaulting loans. 

The government regulators were pressuring the big bank servicers to transfer some of their loans to other servicers so that (hopefully) they could improve their abilities to handle the loans they retained.  Most of these loans seemed to be transferred to Ocwen at first, followed by the upstart from Texas, Nationstar.

Nationstar’s first year was, perhaps predictably, not a smooth one, by any measure.  I believe I’m very close when I say that they only modified something like 12 percent of loan modification applications in the early days, but I wanted to give them the benefit of the doubt and sure enough, as time went on they started reporting to Treasury that they were modifying closer to 25 percent of applicants.  That meant they were improving, and that gave me hope that the worst was in fact behind us.

Talk about disappointment…

I cannot even begin to adequately express the disappointment I felt last week as I learned just how awful homeowners were finding it to deal with Nationstar, and I’m not talking about difficult situations with few solutions… I’m talking about basic HAMP mods or even simple in-house recapitalizations in order to give borrowers a second chance.

One homeowner I spoke with for hours explained that he was on his fourth or fifth loan modification application with Nationstar since they first became his servicer in 2012.  Prior to then, his servicer had been Bank of America, but like so many others, while he was in the loan modification process, but before he could be granted a trial modification, he was told he needed to start the process over with his new servicer… Nationstar.

Now, this is not a homeowner that lacks sufficient income for the size of his mortgage.  I looked through his documents very carefully and could find no rational reason for not modifying his loan.  Without question, were the bank to foreclose and resell the property, investors would incur much larger losses than were his loan simply modified.

This homeowner and his wife have lived in their home for 23 years, so I can’t imagine Nationstar being too terribly worried about this homeowner re-defaulting once his loan was modified to some sort of affordable payment.  And this homeowner isn’t even hoping for any sort of principal reduction… he just wants a chance to restart his mortgage payments now that his hardship has ended and he’s back in the pink, as I think some people say.

The point is, this is not the type of homeowner that should have to apply for a modification five times… he’s an educated professional who understands business and banking and just wants to get back on track making his mortgage payments… just as he has for decades.

Now, if Nationstar were only denying his application, that would be bad enough, but that’s not the half of it.  They continue to invite him to appeal and reapply… while they set sale date after sale date… only to deny him again with no clear reason given.  He said that trying to get Nationstar to provide the inputs used in his NPV test, was like trying to pull the teeth out of a Great White Shark while it thrashed on the deck of a fishing boat at sea.

As of this month, he hasn’t made a payment in over three years, and doesn’t feel any closer to a resolution than he was three years ago.  And that is more than maddening… it’s the most ridiculous item of the day.

Last he spoke with his Nationstar representative, he was told that it wasn’t Nationstar’s fault that his loan hadn’t been modified… now he was told it was Wells Fargo’s fault.  How Wells Fargo came to control the destiny of a loan that was once owned by Countrywide and serviced by Bank of America is something I have no idea how to explain, but according to Nationstar that’s the situation.

Okay, so call me crazy but if that’s true why couldn’t Nationstar have mentioned something about it say… 2-3 years ago, perhaps?  I mean, why keep jerking the guy around for no reason. 

He started out applying to Bank of America, you remember, and they never mentioned anything about Wells Fargo being the decision maker either.  In fact, in 2010, Bank of America even offered him a loan modification, albeit a lousy one that left his payments higher than where they were before he applied, which was a common practice back then and the cause of many re-defaults since.

But, with that experience behind him, why would he ever think that Wells Fargo has anything to do with his loan?  I wouldn’t have suspected such a thing either, and I think I’ve seen most everything related to servicing delinquent home loans at this point. 

The thing is that Nationstar has continued to encourage this homeowner to keep applying after each denial, to no avail, of course, but offering a ray of hope if nothing else.  And so this homeowner has reapplied… we’re coming up on number five… without anyone explaining what the problem is or might be.

Last week, a Nationstar manager actually got a little huffy with this homeowner, blurting out that there was no hope and that nothing could be done to save the home because… wait for it… he was now too far behind since he hadn’t made a payment in almost 3.5 years.

Can you imagine how someone feels after banging his head against the wall for over three years, jumping through each new hoop willingly and upon demand, when he’s told that the reason he can’t be helped now is that he’s been trying to get assistance for too long?  And that’s his fault?

Dearest Nationstar… let’s get something straight.

It’s not that the homeowner in this example has been trying for too long, it’s that you’ve been failing to modify his loan for too long.  You’re the problem here, not the homeowner. 

He does what you ask, submits complete packages every time, supplies additional documents whenever he’s asked to do so… his income has been verified by bank statements and tax returns… he has lived in the home for 23 years… there’s just no reason his loan couldn’t have been modified a month or two after his first application was accepted by Bank of America.

Well, I shouldn’t say there’s no reason… what I should say is that there’s no good reason he couldn’t have been modified way back when.  Actually there are a few reasons for the treatment he’s received… but none of them good.

Bank of America could have modified his loan, in fact they did in 2010, offer him a modification that increased his payments, and therefore wasn’t any help.  They could have done more, perhaps, but you can’t transfer a few thousand loans to another servicer at the drop of a hat… it takes months to make such a transfer happen, so Bank of America knew far in advance that the loan was part of a pool scheduled to be serviced released, and my experience tells me that they stopped trying. 

Once his loan was transferred to Nationstar, it probably took Nationstar a good six months to board the loans that came from Bank of America, so the pre- and post-transfer limitations on the part of the banks involved cost him a year or more.

Then there’s the denials that came without reason, other than the old standard, “You failed the NPV test,” but since his new servicer never bothered to send him all of the inputs used in the NPV test, there wasn’t much he could say about that.  And before he knew it, he was in year two of his loan modification saga.

I don’t think Nationstar understands what the servicer’s role is supposed to be in all of this. 

The servicer isn’t the investor, it’s just a company that sends out statements, posts payments, and takes action when a loan defaults.  Servicers are supposed to be trying to keep homeowners in their homes by modifying their loans if at all possible… is that news to anyone in this country in 2016?

Servicers are not supposed to come off like loan sharks that want to be repaid.  Servicers aren’t owed a nickel by homeowners.  Servicers should be polite, caring and above all informative.  Unfortunately, I’m told by homeowners that Nationstar is never any of those things.

So, since Nationstar is apparently intent on treating homeowners like they don’t really matter and as if homeowners are powerless and entirely unable to cause them any harm, I’d say that it’s a fate accompli that at some point in the relatively near future, we’ll all be reading about Nationstar settling with the government for billions, just as others have before them. 

Until then… well, I guess that’s where I come in… well, me and my friends would be a more accurate way to phrase it.  We need to let Nationstar know that their treatment of homeowners in the foreclosure process is NOT ACCEPTABLE.  We don’t need another Wells Fargo or HSBC, and this time we won’t go nearly as quietly as we have in the past.

Rebranding Nationstar…

Guess what?  Even though Nationstar’s stock price has been in decline since its high of $57.45 on September 30, 2013… to $13 per share on December 30, 2015…  and even though the company has seen quite a few senior managers depart over the last 12 months… Nationstar still thinks very highly of itself.  So highly, as a matter of fact, that the company is launching a re-branding campaign and attempting to become a ONE STOP SHOP for everything having to do with real estate and mortgages. 

In Nationstar’s own words, reported by Housingwire on December 30th of last year…

Nationstar’s vision is to create a “one stop shop” to help consumers “find a home, buy a home, sell a home, or just enjoy the home they own.”

Recent articles on housingwire.com explain that Nationstar is about to rebrand itself as “a highly visible full lifecycle real estate brand.”  According to Housingwire…

“Nationstar apparently intends to transform itself into the mortgage industry’s first “˜go to’ brand and potentially completely rebrand the entire company and all of its brands.”

And in Nationstar’s own words…

“Few industries are as important to our economy as the home mortgage industry.  For tens of millions of Americans, the home they own is their single most important financial asset.  For many people home ownership is the American dream, and for most homeowners a mortgage is the enabler for that dream.  Yet despite the economic and emotional significance of the industry, there are no “go to” brands. 

The home loan industry – which is largely characterized by excessive paperwork, a history of bad business practices, and poor customer service – beckons for innovation and improvements in user experience.  Therein lies the opportunity – not just to create a better mortgage company, but to reimagine the home ownership lifecycle and create an integrated home services company and a world-class consumer brand.”

Okay, hang on a minute here…

Excessive paperwork, a history of bad business practices and poor customer service?  That may be an accurate description of most of the home loan industry, but it’s also Nationstar in a nutshell.

Apparently, just screwing up mortgage servicing related to foreclosures prevention isn’t enough for Nationstar.  Even though the company posted a loss of $48.3 million in Q1 of 2015, in the second quarter they turned things around reporting net income of $75 million, and in Q3 they reported $32 million in net earnings, so now they’ve got all sorts of growth and diversification initiatives in the works.

I have to wonder how people will feel about the Nationstar brand and its growth plans after they’ve read a few of my posts on their specific performance or lack thereof with actual homeowners.  Oh, I know they might ignore my first post or two about them, but when homeowners learn of how Nationstar routinely treats borrowers in need of assistance, it’s hard to imagine that many will want to depend on the company’s one-stop-shopping claims.

I can’t speak for everyone, but I’m only interested in how a company treats its borrowers when they’re in trouble and need help… everyone is peaches and cream when you’re current, right?  And how will investors view Nationstar’s expansion plans, knowing that their core business is under fire by consumers, and is likely to make headlines as the next multi-billion settlement over the mistreatment of homeowners in foreclosure?

If I were investing in the company, I’d tell them to focus on getting loan servicing right before trying to become the country’s “go to” brand for all things real estate.  And changing the company’s name just isn’t going to cut it here.

My advice to Nationstar…

Don’t ignore what I’ve said here, because I’m not going away.  If you don’t believe me then perhaps ask the folks over at Bank of America about my staying power and abilities in this area because this time around I’m both rested and really pissed off that I had to spend most of last week trying to help people who wouldn’t need my help if Nationstar would come anywhere close to being competent and caring when doing their job.

I haven’t looked it up yet, but I’m told that Nationstar’s CEO is Jay Bray… which rhymes and makes my job of poking fun and shining a light on incompetence that much easier. 

His email should be: jay.bray@nationstarmail.com

Here’s a thought for my DOERS…

How about you all write to Jay Bray today and say: Hey, Jay!  You’re heading the wrong way. 

If you keep doing what you’re doing as far as preventing foreclosures is concerned, you’re going to end up in the headlines settling with the Justice Department for $500 million or something close.  You’re stock will remain in the low teens, if you’re lucky, and your plans to rebrand and grow your diversified enterprise will limp along until they fail.

I’m not guessing… I’m not threatening… and I’m sure as heck not going away. 

I’ve been writing about the foreclosure crisis since 2007.   And I’ve written over 1100 articles and posted Lord knows how many podcasts… so basically I’m in way too deep to let the kind of crap you’re company is pulling go unanswered.  This is not my first foray into this area, and I refuse to see things get worse, after several years of getting better.

So, at this point, all I can think of to do is write about what homeowners are going through until everyone that matters cannot help but know how badly Nationstar treats its homeowners when they need help the most… or how many foreclosures Nationstar causes by being uncaring and inept… and why no one should ever want to do business with a company that with all of that being said, remains unabashedly pleased with itself and focused on expanding.

Change is good Mr. Jay Bray… so please consider making whatever changes you need to make to improve your company’s capabilities related to preventing foreclosure and modifying loans now, before this gets out of control, and there’s no turning back for either if us.

At least give it some thought, would you please?  As always, you can reach me at mandelman@mac.com.

Mandelman out.