Mr. Cooper news: its MSR activity, legal squabbles and more

September 24, 2024 5:30 AM

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Mr. Cooper, the Dallas-based nonbank lender, has steadily grown its presence in the mortgage industry over the last few years and is slated to become one of the largest servicers by the end of 2024. But it's not without its legal squabbles.

As one of the most high-profile lender-servicers in the business, Mr. Cooper is well positioned in the market, but faces lawsuits over alleged fee violations, mortgage-servicing errors and a wide-spread data breach.

In July, the beleaguered Flagstar Bank in New York announced that it had agreed to sell more than $1.4 billion of mortgage-related assets to Mr. Cooper in an all-cash deal. With the added purchase of $200 million of mortgage warehouse loans from Flagstar, the firm is positioned to become a dominating force in the market, pending approval of the agreement.

During Mr. Cooper's second-quarter earnings call, Group President Michael Weinbach stated that future acquisitions aren't off the table, but the company is in a gestation period as it prepares to finalize the deal with Flagstar sometime in early 2025.

Jay Bray, chairman and chief executive of Mr. Cooper, echoed the sentiment at a Barclays investor conference earlier this month, but highlighted "aggressive buyers" as a driving factor behind the decision to step out of the spotlight for the time being.

"The first part of the year was, well, we looked at a lot of deals. It was very active. There was a lot of supply. I'd say the summer was even pretty active, but there were a couple of aggressive buyers out there. So we kind of sat on the sidelines and let them bid aggressively," Bray said.

With the arrival of the Federal Reserve's long-awaited 50 basis point cut to its federal funds rate on Wednesday, the latest fluctuation in the financial services landscape could play out in Mr. Cooper's favor.

Experts at National Mortgage News' annual Digital Mortgage conference held in San Diego last week remarked that mortgage servicing rights holders or Wall Street firms were by and large unable to also handle originations in the past. But that has since changed.

"I don't think people expected the [Mr.] Coopers and Pennymacs of the world that have origination arms to own all the servicing," Chad Smith, president and chief operating officer at Better Home and Finance, said during the conference. "So that's what I focus on every day, how am I going to compete with that."

Mr. Cooper's tech plays have furthered that presence, specifically in its call center, which according to data from ICE Mortgage Technology yielded the company a 73% refinance recapture rate in the second quarter of this year.

It hasn't been consistently upbeat for the firm, however.

Last month, the Consumer Financial Protection Bureau sided with plaintiffs in a lawsuit against Mr. Cooper alleging that through its subsidiary Nationstar, it violated the Fair Debt Collection Practices Act by charging customers a $25 fee to obtain payoff quote statements.

Read on to learn more about the ongoing legal battles involving Mr. Cooper and the impending impact on earnings.

Highlights of Q2 filings from mortgage lenders

Mr. Cooper saw a noticeable boost from its purchase of assets and liabilities from Flagstar Bank's mortgage servicing and third-party origination divisions in July, reporting a net income of $208 million for the second quarter. This figure was up from the $181 million reported in the prior quarter.

The deal, valued at $200 million in cash before any potential adjustments, includes an added $1.4 billion aggregate purchase price for picking up Flagstar's MSRs.

"We get a major step-up in scale," Jay Bray, chairman and CEO of Mr. Cooper Group, said in an earnings call comment on the deal.

Read more:

Details from mortgage lender Q2 filings you may have missed

CFPB sides with plaintiffs in Mr. Cooper lawsuit

As part of its ongoing war against "junk fees," the Consumer Financial Protection Bureau has aligned with the plaintiffs in a recent lawsuit against Mr. Cooper accusing the organization of illegally imposing a $25 fee for payoff quote statements.

The CFPB's stance is that the mortgage lender and servicer is in violation of the Fair Debt Collection Practices Act, specifically by charging consumers the fee and failing to clearly inform them of the cost in mortgage agreement documentation, according to an amicus brief filed with a Washington federal court on Aug. 8.

"Rising mortgage fees affect the affordability of home ownership as well as household balance sheets. … These fees are particularly problematic where they serve as barriers to competition in the marketplace, such as when fees serve as an obstacle for consumers to shop around for a better interest rate," Seth Frotman, general counsel of the CFPB, said in an Aug. 6 blog post.

While Mr. Cooper's loan contracts require borrowers to notify the firm prior to any legal action, the CFPB states that the nature of the claims under the FDCPA allow consumers to persist in the face of notice-and-cure provisions.

Read more:

CFPB weighs in on Mr. Cooper's 'pay to pay' suit

The true impact of Mr. Cooper’s data breach

It's been roughly 10 months since Mr. Cooper was the victim of a cyber attack, revealing the Social Security numbers of more than 14 million customers. Since then, customers have been subject to everything from attempts to fraudulently open credit cards in their names to having bank accounts drained.

National Mortgage News' Maria Volkova writes that a two-stage attack was launched against the mortgage lender. The first stage involved an initial access broker exploiting vulnerabilities in Mr. Cooper's system and extracting customer personal identification information like Social Security numbers. The second phase was led by a ransomware gang.

Accusations in the ongoing lawsuit against the firm charge Mr. Cooper with failure to comply with industry standards and regulations regarding adequate protection of customer information.

Read more:

Mr. Cooper data breach victims reveal how they've been affected

Mr. Cooper nears settlement in payments lawsuit

Amid an ongoing lawsuit between Mr. Cooper and ACI Payments over a $2.3 billion servicing error in 2021, the mortgage lender is hoping to bring the legal battle to a close.

Contractors for ACI Payments, which is a subsidiary of ACI Worldwide, inadvertently caused the problem when they used confidential information of Mr. Cooper's customers as part of quality assurance testing. The test withdrew errant mortgage payments across more than 500,000 borrowers, with 100 people also incurring non-sufficient funds charges as a result.

Not much is known about the proposed settlement, save for an anticipated finalization date of Sept. 30 to be followed by a voluntary dismissal of the suit by Mr. Cooper.

Read more:

Mr. Cooper and ACI Payments move towards settlement

Mr. Cooper: Cyber attack and PII leak are not linked

Late last month, Mr. Cooper quickly disputed accusations in an ongoing class action between the company and its customers that the October 2023 cyber attack is to blame for their personally identifiable information being leaked on the dark web.

"There is absolutely no evidence that any of the personal identifiable information subject to the ransom attack is on the dark web," Mr. Cooper wrote in a filing dated Aug. 20. "Plaintiffs have not alleged any Article III injury sufficient to give them standing to state a claim."

Aggrieved plaintiffs in the case submitted a 178-page document in Texas federal court last month explaining how each was financially affected following the breach. Mr. Cooper declined National Mortgage News' request for comment, but has previously stated that it was prompt in detecting the attack and deploying its incident response protocols.

Read more:

Mr. Cooper denies link between cyber attack and PII on dark web