Because of regulatory changes, banks — traditionally the biggest players in the servicing business — are paring down their portfolios. This is leading to the rise of nonbank servicers, like the ones we’re about to meet, who hold the fate of our friends in Iowa in their hands.
The first two — polar opposites — are the known bidders for ResCap’s servicing portfolio. The first is Ocwen Financial, which has bought servicing portfolios from the likes of Barclays, Goldman Sachs, JPMorgan Chase, Morgan Stanley, Lehman Brothers and Bank of America.
Based on our reading of Ocwen’s numbers, it has moved almost every American job in the portfolios it has bought to Bangalore and Mumbai. It would presumably do the same to the ResCap portfolio, absent any restrictions on moving the jobs.
This is perfectly legal — and employing folks in India is much cheaper than hiring Americans in places such as Waterloo.
In addition to having cheap labor, Ocwen’s servicing subsidiary also has low taxes. It recently moved the subsidiary’s headquarters to a special Virgin Islands tax zone. Thus, it remained a U.S. company eligible to participate in federal programs — but it will get 90 percent of its U.S. corporate taxes forgiven, thanks to the benefits of the special tax zone.
We can’t give you Ocwen’s version of any of this — even though we asked several times, Ocwen declined to speak to us about anything.
The other known bidder for the ResCap rights is Nationstar Mortgage, controlled by the Fortress Investment Group. As a publicly traded private equity house, Fortress is taxophobic in its own business — but Nationstar is sending ever-larger checks to the U.S. Treasury, despite having tax-loss carryforwards on its books. That’s because it can use only about $11 million of its almost $200 million of carryforwards in any given year.
Nationstar proudly tells all and sundry that all of its employees are in the United States, and that it’s a “high-touch” servicer. “High-touch” is marketing-speak for “trying to provide really good service.” For example, Nationstar says it assigns an account officer to every troubled borrower, so that that the borrower is always dealing with the same person rather than getting whoever happens to be free. The theory is that providing better and earlier service to borrowers, especially troubled borrowers, improves the performance of the loans being serviced.