Performance Improves After Servicing Transfers Across Industry

Performance Improves After Servicing Transfers Across Industry


Since the housing crisis, many large banks have sold off servicing portfolios to smaller, emerging companies. According to a recent study, these portfolios often begin to perform better after the transfers.

“Acquirers are actively managing their portfolios, resulting in better performance overall,” said Bill Hunt, VP at Opera Solutions, which conducted the study.

Opera Solutions found faster liquidations and better long-term performance for modified loans after portfolios were sold.

According to the study, two servicers stand out for acquiring the “lion’s share” of servicing rights—Ocwen and Nationstar.

At Ocwen, which acquired the most loans, the study detected higher levels of foreclosures and REO rates immediately following acquisitions. However, after a period of months, Ocwen’s portfolios stabilized and improved.

Delinquencies of 60 or more days declined steadily at Ocwen from the time of acquisition.

Loan modifications increased from 0 to about 2 percent of the portfolios after about two months in Ocwen’s possession.

Similarly, when observing servicing portfolios sold by Bank of America, the researchers found “lags of several months before performance improved.”

“This is not entirely unexpected; a new servicer may need more time when on-boarding loans to correct data issues before commencing collections,” Hunt said.

Acquirers tend to address these issues before flushing foreclosures through the pipeline and working to modify loans.

The study did find a few servicers who seem to reduce 60+ day delinquencies faster than others. Ocwen, NationStar, and Select Portfolio Servicing “achieved substantial reductions” within six months of acquiring a portfolio, while other servicers tend to take longer.

While some servicers tend to perform better than others, Opera Solutions also found performance tends to vary by state as well. Loan modifications in New Jersey and Pennsylvania have the highest success rate, while modifications performed in Georgia have the lowest.

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