State regulators halt $39B mortgage servicing rights transfer

The New York State Department of Financial Services has stopped the transfer of mortgage servicing rights from Wells Fargo to Ocwen Financial, reportedly over concerns about the company’s ability to handle the increased volume.

Benjamin Lawsky, the regulator’s superintendent, halted the transfer of nearly $39 billion in servicing rights indefinitely. The Atlanta-based mortgage servicer, which  has done a number of big acquisition deals over the past three years with Goldman Sachs, JPMorgan Chase and other banks, picked up the servicing rights last month.

The case marks Ocwen’s second run-in with regulators. The company agreed with the Consumer Financial Protection Bureau, state attorneys general in a number of locations and regulators to execute mortgage principal reductions by $2 billion and refund $125 million to borrowers that have already fallen victim to foreclosure.

A monitor from Lawsky’s office has been at the company since last year’s case, a source familiar with the situation told the Times.

The transfer of such rights from financial behemoths to smaller companies has been a common trend as of late, but regulators and investors are increasingly expressing concern about the little guy’s capacity to handle the flood. Loans in trouble are of particular concern, as they demand more time and attention, the Times said. [NYT] — Julie Strickland