Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc. Kelly A. Giambra MBA 515: Business Environment, Innovation and Entrepreneurship Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc. Southern New Hampshire University May 15, 2016 1
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
Kelly A. Giambra
MBA 515: Business Environment, Innovation and Entrepreneurship
Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
Southern New Hampshire University
May 15, 2016
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
Abstract
This paper discusses a business analysis of Nationstar Mortgage Holdings, Inc.
and the United States (U.S.) mortgage industry. Nationstar Mortgage Holdings Inc. (NSM)
(Nationstar) is one of the largest residential mortgage servicers in the U.S. The Company was
initially founded in 1994 and is headquartered in Lewisville, Texas (About Nationstar, 2016).
Nationstar is a Delaware formed corporation since 2011, and includes wholly-owned subsidiaries
that provide servicing, originations, and transaction based services to single family residences.
(Form 10-K, 2016) The Company maintains a servicing portfolio of approximately $402+
billion with more than 2.5 million customers (About Nationstar, 2016).
Select a market domain such as transportation, healthcare, manufacturing, or the service industry. This selected domain will be your area of focus throughout the MBA program, although you will be able to change if you need to. Begin by evaluating the business environment of the market domain. Then, select a specific company within the market domain. The company you select should be a company where you can envision intrapreneurial and entrepreneurial opportunities, as you will identify and assess these opportunities in this project. Finally, evaluate the trends relevant to the business environment of your company and market domain.
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
I. Market Domain Analysis of the U.S. Mortgage Industry
A. Historical Significance and Dramatic Changes Over Time
The U.S. mortgage industry has evolved over time and is significantly different when
compared to the 1930’s Pre-Great Depression era (Green and Wachter, 2005). Mortgages
around that time were often featured with variable interest rates, higher down payments, balloon
payments, and shorter maturity periods of around five to ten years (Green and Wachter, 2005).
During the 19th century, most mortgages did not involve large banks or financial institutions, and
were instead issued by “landowners, neighbors, or small community lenders” (Mosson, 2012). In
addition, borrowers not only had equity needed to refinance, but they could easily sell their
homes if necessary (Green and Wachter, 2005).
During the Great Depression from the periods of 1931 to 1935, there was a decline in
property values which led to a wave of foreclosures when borrowers became unable to sell their
homes (Green and Wachter, 2005). From the periods of 1949 to 1979, the amount of U.S.
mortgage debt increased by roughly 46 percent of household income and proceeded to increase
by 73 percent post 1980 (Green and Wachter, 2005). Alongside this trend, total household
mortgage expenses increased by 15 percent of total household assets in 1949, to 28 percent in
1979, and again to 41 percent in 2001 (Green and Wachter, 2005). This growth in debt had
shaped the market’s shift into securitization.
Securitization is defined as the business practice of pooling and selling subprime loans so
that the investors would not hold onto the interest, also referred to as “mortgage-backed
securities” (MBS) (FCIC, 2011). Securitization involved the Government Sponsored Enterprises
(GSE’s) process of packaging such loans into MBS and then selling the rights to principal and
interest payments to investors in the secondary market (FCIC, 2011). Holders of an MBS have
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
the right to receive principal and interest payments from borrowers in the pool held by a trust on
behalf of the investors (FCIC, 2011).These types of loans dominated the mortgage market during
the subprime lending crisis (Mosson, 2012).
B. Historical Factors and the Dissolution of Mortgage Lenders
Inhibiting Factors: The Subprime Lending Crisis and Housing Bubble Burst
A significant inhibiting factor in the U.S. mortgage industry involved the 2007 subprime
mortgage crisis. A subprime mortgage is a type of loan made out to high-risk borrowers with
lower credit scores, who cannot qualify for a conventional loan (Carther, 2009). Subprime
lending was a contributing factor that led to the many notable mortgage companies. In fact, in
2007, Freddie Mac’s CEO Richard Syron had warned of this, stating that home prices “appeared
to be overvalued” and trillions of dollars in home value would eventually be lost (Bianco, 2008).
The subprime lending crisis was also accompanied by the housing bubble burst, which
eventually resulted in high numbers of delinquencies and foreclosures (Carther, 2009).
Subprime lending first began in the years 2003 to 2007, when the government passed
several regulations under the Clinton Administration, Bush Administration, Congress, and
Department of Housing and Urban Development (HUD), making it easier for lower income
consumers to purchase homes (Pritchard, 2014). As a result, GSE’s like Fannie Mae and Freddie
Mac were encouraged to offer more of these types of loans to lower income homebuyers. U.S.
banks and mortgage companies had jumped on the opportunity to solicit subprime loans, and
allowed for risky lending practices with lax proof of income requirements (Pritchard, 2014).
The number of originations from subprime loans increased from 9 percent in 1996 to 20
percent in 2006, with total subprime mortgages amounting to $600 billion in 2006 (Bianco,
2008). These numbers led to a majority of lenders taking numerous risks (Bianco, 2008). U.S.
homeownership rates had also risen from 64 percent to 69.2 percent in the years 1994 to 2004
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
(Bianco, 2008). The demand helped to fuel the market, as rising home prices and consumer
spending that led to increased home values. Increased refinances in turn led to rising household
debt which was different than the earlier decades (Bianco, 2008).
When the recession hit in 2007, property values plummeted, and this caused many
subprime borrowers to fall underwater and default on their payments (Bianco, 2008). The
foreclosure crisis mainly involved the subprime market, since the loans carried higher interest
rates then “prime” or conventional loans, making them more difficult to pay off (Mallach, 2009).
By the end of 2006, the housing bubble burst resulted in lenders facing over 15 million in loan
debt (Mallach, 2009). In addition, the foreclosure crisis caused home prices to drop while
lenders began to tighten their credit requirements. In 2006, there were 1.2 million foreclosure
filings in the U.S. and most were subprime loans (Mallach, 2009).
As a result, many mortgage lenders either faced lawsuits or went out of business. For
example, in 2007, Ameriquest was one of the U.S.’s largest subprime lenders who closed its
doors and laid off 3,800 employees (Bianco, 2008). There were also several other mortgage
companies that either closed or downsized operations including: WJ Bradley Mortgage, North
Milwaukee State Bank, Barclays, Ally (GMAC), and Alterna Mortgage (Robertson, 2007).
Many of these companies either filed Chapter 11 bankruptcy or were shut down by the FDIC.
Enabling Factors: Delinquencies and Foreclosures
Create New Business for Mortgage Servicing Companies
The growing number of delinquencies and foreclosures provided an entirely new
paradigm as it enabled new opportunities for mortgage servicing companies. These companies
began to recognize the niche markets surrounding foreclosure prevention. In 2010, several large
banks were sued for deceptive practices by the U.S. Department of Justice (DOJ) in the National
Mortgage Settlement Lawsuit (NSM). The lawsuit resulted in recovery for victims of subprime
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
and predatory lending in the amount of 25 billion dollars in 2012 (Elias, 2014). The NSM
involved five of the largest mortgage servicers: Ally Financial, Bank of America, Citigroup, JP
Morgan Chase, and Wells Fargo, all who were sued at both the state and federal level (National
Mortgage, 2014).
Negotiations of the settlement occurred amongst the Office of the Attorney General
(AG), the DOJ, as well as other federal agencies such as the Department of Housing and Urban
Development (HUD). The settlement distributed $2.5 billion dollars to forty-nine (49) states
with California, Florida, Texas, New York, and Illinois receiving the largest percentage of funds
(National Mortgage, 2014). Furthermore, homeowners who lost their properties to foreclosure
between the dates January 1 to December, 31, 2008 were given cash payments (National
Mortgage, 2014). The settlement set aside $3 billion to refinance underwater mortgages for
borrowers (National Mortgage, 2014).
A final result of the settlement required mortgage servicers to offer homeowners
alternatives to foreclosure through various home retention programs. (National Mortgage, 2014).
An approximate $17 billion was reserved for loan modifications, short sales, forbearance
programs, and other programs for qualifying borrowers (National Mortgage, 2014). The
settlement ordered mortgage servicers to restructure and improve policies handling mortgage
loans and foreclosures (National Mortgage, 2014). The settlement also permitted federal and
state governments to proceed with criminal prosecutions for any offenses or violations of fair
lending laws (National Mortgage, 2014).
C. Impact of Factors: Opportunities for Change and Innovation
Mortgage Laws and Regulations That Impact the Business
Prior to the National Mortgage Settlement lawsuit, there were several state and federal
laws passed to help homeowners with subprime mortgages (Rosenbleeth, 2008). A most
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
significant part of such legislation was the Mortgage Reform and Anti-Predatory Lending Act of
2007, passed in the U.S. House of Representatives. The law created a licensing requirement for
all mortgage loan originators such as brokers, and set several regulatory standards for all
mortgages (Rosenbleeth, 2008). The law also amended parts of the Truth in Lending Act
(TILA), and amended parts of the Home Ownership Equity Protection Act of 1994 (HOEPA)
(Rosenbleeth, 2008).
HOEPA provides foreclosure prevention by allowing borrowers and their lenders to
modify their mortgages (Bond, Musto, & Yilmaz, 2009). As such, lenders approved by the
Federal Housing Administration (FHA) may refinance borrowers into lower payments through
principal reduction and re-amortization of a new term (Bond, Musto, & Yilmaz, 2009). TILA
mandates that a lender fully disclose costs and benefits of each type of mortgage product and
fully disclose the payment terms of the mortgage (Rosenbleeth, 2008).
Regulations in the Mortgage Reform Act subsequently required lenders to take “duty of
care” when offering loan products to consumers (Rosenbleeth, 2008). The authority to enforce
duty of care is monitored by HUD, the Office of the Comptroller of the Currency (OCC), the
Federal Trade Commission (FTC), and the FDIC (Rosenbleeth, 2008). Title I of the Mortgage
Reform Act prohibits an originator from receiving compensation for steering customers into
unaffordable loans (Rosenbleeth, 2008).If the mortgage company violates any regulations under
Title I or TILA the borrower has a “cause of action” and can sue the lender for civil damages
(Rosenbleeth, 2008). Nevertheless, Title II of the Mortgage Reform Act will set minimum
standards that the secured creditor must make a “good faith” determination in approving the
borrower for a mortgage loan (Rosenbleeth, 2008).
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
The Mortgage Forgiveness Debt Relief Act of 2007 was another law passed to prevent
foreclosure as a result of the poor housing market (Rosenbleeth, 2008). This act amended the
Internal Revenue Service (IRS) Code of 1986 to prevent borrower tax penalties from loan
modifications (Rosenbleeth, 2008). The federal law helps families obtain lower principal and
interest payments without facing higher taxes. Additional programs included Bush’s Federal
Housing Administration (FHA) Secure program and the HOPE NOW alliance which consists of
counselors, investors, and lenders who help homeowners in need of assistance (Rosenbleeth,
2008). Each of these programs were designed to help homeowners in ARM loan products who
could not repay once the interest rate reset (Rosenbleeth, 2008).
In 2009, Obama introduced the Making Home Affordable Act (MHA), which helps
homeowners in default with loan modifications or refinance, unemployment forbearance plans,
or short sale and deed-in-lieu of foreclosure options. As a part of MHA, Obama introduced the
Home Affordable Modification Program (HAMP), which is a loan modification program for
eligible borrowers that could possibly reduce their monthly payment to a more affordable
payment. In 2012 and 2013, Obama further announced amendments to the MHA by expanding
eligibility criteria, and extending the application deadline for MHA programs to December 31,
2016 (Making Home, 2015.)
Finally, U.S. Congress and President Obama passed and The Dodd-Frank Wall Street
Reform and Consumer Protection Act of 2010, which established the Consumer Financial
Protection Bureau (CFPB) within the Federal Reserve System (FRS) (Carpenter, 2014). The
CFPB writes rules and passes a numerous federal consumer financial protection laws
(Carpenter, 2014). The CFPB also enforces the laws that regulate banking institutions to ensure
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compliance. Most recently, the CFPB implemented new federal mortgage rules that began in
January 2014 (Carpenter, 2014).
These regulations have helped to provide homeowners shopping for a mortgage, with
better protections from unethical business practices (Mortgage Rules, 2014). The CFPB rules
require banks to limit the amount of servicing fees and provide clear monthly billing statements
to borrowers (Mortgage Rules, 2014). The monthly billing statements are also required to notify
the borrower in advance when the interest rate changes on an ARM mortgage (Mortgage Rules,
2014). Lastly, the CFPB will require servicers to immediately offer workout assistance when
borrowers fall behind on payments (Mortgage Rules, 2014).
Further, in October 2015, the CFPB passed the TILA-RESPA Integrated Disclosures
Rule (TRID), making loan originations increasingly expensive (CFPB, 2015). The new TRID
rules provided an amendment to both TIL/Regulation Z and Regulation X disclosure
requirements that must be issued to borrowers for most mortgage transactions (CFPB, 2015). As
a result, total net gains from loan originations made by banks and servicers decreased by 60% in
the fourth quarter of 2015 from TRID (Swanson, 2016). Originations were reportedly up three
trillion in 2006 and decreased to about 1.1 trillion in 2014, while increasing slightly to 1.2 trillion
in 2015 (Whalen, 2014). Ultimately, it is becoming more expensive for lenders to originate
loans, as sales costs, processing, underwriting, and closing costs are now increasing (Swanson,
2016).
The Mortgage Industry Today Offers New Opportunities for Growth
In the present, the subprime mortgage crisis is dwindling away, however, regulations
continue increase as evidenced by TRID (Whalen, 2013). As a result, many large banks like
JPMorgan Chase, are leaving the lending and servicing business (Whalen, 2013). With large
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
banks exiting the industry, non-bank specialty servicers like Nationstar Mortgage Holdings
(NSM) are jumping on opportunities to expand (Pangindian, 2013). Nationstar and Ocwen
Financial (OCM) have recently become major players noted to be “best equipped” when it comes
to servicing distressed assets (Pangindian, 2013). Further, a business practice known as “high-
tech servicing” is now on the horizon (Pangindian, 2013). High-tech servicing is a process that
involves regular and frequent contact with borrowers to prevent loan default and foreclosure
(Pangindian, 2013). Both companies have expanded in portfolio size as they continue to acquire
servicing rights of large pools of loans from banks leaving the servicing business (Pangindian,
2013).
Lastly, non-bank servicers have stepped up to meet the needs of consumers, as the
servicing industry continues to handle remaining distressed assets from the crisis (Whalen,
2013). The supply of Mortgage Servicing Rights (MSR) and distressed assets are one of the
most attractive investment strategies for companies like Nationstar and Ocwen (Whalen, 2013).
As profits from originations continue to decrease, Nationstar has recently innovated a new digital
and mobile service known as Xome in to improve their customer’s home buying experience
(Whalen, 2013). Nevertheless, the challenges remain the regulators such as the CFPB, FHFA,
FHA, the Fed, the OCC, and FDIC, all whom oversee the mortgage industry and approve
distressed loan servicing and MSR transfers (Whalen, 2013).
II. Competitive Readiness of Nationstar Mortgage Holdings, Inc.
A. Internal Factors: SWOT Analysis
Nationstar’s financial portfolio mainly consists of purchased mortgage servicing assets,
subservicing of accounts from other lenders, and loan originations (About Nationstar, 2016).
Their customer base includes various members of the real estate market: homeowners, buyers,
sellers, investors, and realtors (Form 10-K, 2016). The Company’s primary investors consist of
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
Government Sponsored Entities (GSEs) like Fannie Mae and Freddie Mac, private label
investors, Ginnie Mae, investors in mortgage servicing rights (MSRs), and clients who hire them
to subservice their accounts (Form 10-K, 2016). As of December 31, 2015, Nationstar is the
largest non-bank servicing company and the fourth largest mortgage servicer in the U.S. (Form
10-K, 2016). Their servicing consists of loan administration, payment processing, escrow
accounts, collecting insurance, home retention and foreclosure prevention, and foreclosures
disposition for the owners of the loans (Form-10K, 2016).
Strengths: Customer Centric Model
Nationstar utilizes a customer centric “high-touch” mortgage servicing model which
helps to improve borrower repayments (About Nationstar, 2016). The Company strongly values
home preservation and main goals are to decrease the number of borrower delinquencies and
defaults on mortgages. The high touch servicing model involves regular and frequent borrower
contact to offer an array of payment assistance and loss mitigation options to struggling
homeowners. This helps to not only preserve assets for its investors and clients, but also
preserves neighborhoods to maintain property values (Form 10-K, 2016).
Strengths: Growing Servicing Portfolio
Nationstar has been gradually increasing its servicing portfolio since 2007 (Form 10-K,
2016). The increase is mainly due to acquisitions of MSRs and mortgage loan originations.
During 2015, the Company continued to incorporate a “capital light strategy”. This strategy uses
less capital by growing their MSR portfolio and selling roughly $4.6 billion in MSRs at market
value, while continuing to retain subservicing rights (Form 10-K, 2016). In addition, last
October 2015, Nationstar acquired a private-label subservicing contract of approximately $55
billion for a top performing financial institution (Form 10-K, 2016). The Company expects a
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
large number of loans to board at the beginning of 2016, thus growing the MSR portfolio in 2016
(Form 10-K, 2016).
Strengths: Multiple Sources of Revenue
Nationstar has multiple sources of revenue that may be used to purchase MSR’s in order
to meet their returns with little or no capital (Form 10-K, 2016). Revenues are earned through
servicing fees as “basis points” of the unpaid principal balances of loans and late fees,
modification fees, and incentives (Form-10K, 2016). Revenues from loan originations are earned
through application fees used to cover the costs of processing and underwriting. Nationstar also
maintains licensure in all 50 states to originate its own residential loans through Greenlight
any industry that’s old school and old fashioned, it’s mortgage, so we’re trying to think of
ourselves as a consumer product company that embraces technology”, (Cowan, 2016).
Technological Factors: Increased Spending
Subsequently, mortgage technology has changed over the years thus prompting servicers
like Nationstar to increase spending on new technology. Technology is important for the health
of the industry because good systems and internal controls lead to operational efficiency
(Lebowitz, n.d.). Furthermore, with new regulations under the CFPB and TRID, the costs of
servicing a mortgage is becoming more expensive. In 2013, the cost for lenders to service
delinquent mortgages averaged $2,300 per loan per year, nearly five times the cost in 2008
(Light, 2013).
Technological Factors: The Internet and Automation
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
The internet and automation have become being prevalent in the mortgage servicing
industry in recent years (Lebowitz, n.d.). Nationstar has responded to this by advancing their
computer systems though automation and programs that improve productivity (Form 10-K,
2016). The Company has implemented new technology to improve the speed in processing a
loan, posting payments, answering consumer questions, and issuing reports to management
(Citrix, 2016).,. Mortgage servicers must invest in this technology to improve their service level
to borrowers, bankers, and investors which provides a competitive advantage (Lebowitz, n.d.).
Technological Factors: New Business Lines
Thus, in 2015 Nationstar revealed its new “swipe and click” website and mobile app
called “Xome” (Form 10-K, 2016). Xome technology allows for homebuyers to conveniently
search property listings, select a real estate agent, and apply for a mortgage through a dashboard
(Form 10-K, 2016). Additionally, Nationstar conducted recent consumer research prompting the
launch of their new business line “Mr. Cooper”, to be seen in 2016 (Cowan, 2016). The
Company spent about 5 million on the branding in hopes that the innovation leads to a new ethos
of “personal, customer-focused and easily navigable online service” (Cowan, 2016).
Technological Factors: Risks from Rapid Growth
Nationstar recently experienced rapid growth from several mergers and acquisitions over
the past few years (Citrix, 2014). This level of growth can put a strain on an IT infrastructure and
put customers at risk of privacy breaches. Such growth without enough systems in place may
also make it difficult to meet servicing level agreements and handle the new customers (Citrix,
2014). If systems are not in place to handle large loan volumes, it could subject the company to
loss of revenues, lower numbers of originations, and security breaches. Nationstar has responded
by investing in better IT security to provide the tools and oversight needed for disaster recovery,
data loss prevention, and regulatory compliance (Citrix, 2016).
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
III. Opportunities and Trends: Intrapreneurial and Entrepreneurial Opportunities
A. Intrapreneurial Opportunities for Nationstar Mortgage Holdings, Inc.
Nationstar actively engages in intrapreneurial activities at both the individual employee
level and at team level when it comes to new business lines. According to the Company: “We are
blessed with an incredible culture that promotes innovation, enthusiasm, and passion (About
Nationstar, 2015)”. The Company offers several programs including the “Artists in Residence”
program, “Community Outreach Team”, “Random Acts of Kindness” project, and participation
in “Habitat for Humanity” (About Nationstar, 2015). Furthermore, since Nationstar is focused on
keeping people in their homes, they continue to develop business lines and volunteering
opportunities that help others, while making their team even stronger.
Nationstar earns revenue through the quality delivery of loan servicing, originations, and
mortgage transactions to mostly single family residences throughout the United States (U.S.)
(About Nationstar, 2015). The Company provides services to homeowners, home buyers,
sellers, investors, and other real estate players (About Nationstar, 2015). Because Nationstar is
focused on preserving homeownership, expanding its already existing Community Outreach
business line to underserved borrowers would fulfill this objective further. As a servicer of high
risk loans, a significant increase in delinquencies could have a significant impact on revenues,
expenses, liquidity, and on the valuation of our MSRs as follows (Form 10-K, 2015).
B. Intrapreneurial Assessment: Expansion of Community Outreach to Underserved States
Though the number of delinquencies and foreclosures has declined over recent years,
foreclosure prevention activities continue to remain a primary need in many local communities
(Treasury, 2013). In addition, the mortgage industry has drastically changed since the 2008
financial crisis thus leading to increased public interest in models of that more consumer focused
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
and value based while minimizing risk and maintaining capital gain (Accenture, 2013). At the
beginning of the financial crisis, industry business models were focused mainly on collecting
mortgage payments for investors instead of customer service to homeowners in need of
assistance (Treasury, 2013).
However since 2009, business models shifted toward helping homeowners avoid
foreclosure when Obama launched the Making Home Affordable (MHA) program (Treasury,
2013). At that point servicers were provided with both a structured framework and financial
incentives to encourage modifications (Treasury, 2013). Recent data shows evidence of a need
for mortgage lenders to focus on community outreach to underserved states. In fact, a 2015
oversight review by the federal inspector general of the Troubled Asset Relief Program (TARP),
reported that the U.S. Treasury has done far too little to help troubled homeowners in certain
states (Mantel, 2015).
In the latest TARP quarterly report to Congress, the federal inspector called for the
Treasury to step up its outreach efforts in states where homeowners were underserved to increase
participation in the Home Affordable Modification Program (HAMP) (Prevost, 2015). Therefore,
since Nationstar services all 50 states, an intrapreneurial opportunity exists to expand outreach to
these distressed areas. It has also been found that communication between servicers and
homeowners applying for assistance improves proactive outreach to newly delinquent
homeowners and in resolving borrower complaints (Treasury, 2013). Thus, the Treasury issued
several requirements for servicers like Nationstar who participate in MHA-HAMP (Treasury,
2013). Part of the requirements are for servicers to provide each distressed homeowner with a
Single Point of Contact (SPOC) to help with foreclosure prevention options (Treasury, 2013).
Benefits of Community Outreach in Minimizing Delinquencies and Foreclosures
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
Expanding outreach to underserved states would mainly benefit Nationstar’s ability to
preserve assets for its investors by saving more homes from foreclosure. These underserved
states also present opportunities for Nationstar to find more struggling homeowners to apply for
assistance programs under MHA including HAMP. In addition, community outreach benefits the
customer service relationship through improved communication, while complying with
regulations (Treasury, 2013). To date, only 1.5 million homeowners received HAMP
modifications which is half of what was expected by the Treasury (Prevost, 2015). As a result,
the government called for improve its outreach especially to states that have been underserved by
the program (Prevost, 2015). Specifically, more outreach is needed in states such as Alaska,
Arkansas, Indiana, Iowa, Kansas, Michigan, North Dakota, Oklahoma, Tennessee and Texas
(Prevost, 2015).
Nationstar is considered a nonbank specialty servicer whom a significant part of its
business focuses on servicing delinquent or defaulted loans (Lee, 2014). Though large banks
still control most of the mortgage servicing, nonbanks have been rapidly expanding, This has led
to concerns raised by the Federal Housing Finance Agency (FHFA), especially with the three
fastest growing non-banks Ocwen, Nationstar, and Walter Investment (Lee, 2014). Specifically,
these three companies have been targeted by the FHFA out of concern that rapid growth has led
them to become ill equipped in adequately serving distressed borrowers (Lee, 2014). Thus, an
additional benefit of Nationstar’s expansion of community outreach services is the improvement
of both proactivity and level of compliance with regulatory directives.
Furthermore, recent data on loan modification approvals has indicated that between 2009
and 2014, both Ocwen and Nationstar approved fewer of these programs than the largest banks
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
(Lee, 2014). Whereas, “Bank of America, CitiMortgage, JPMorgan Chase, and Wells Fargo had
higher approval rates of 43 percent, 44 percent, 29 percent, and 30 percent, respectively (Lee,
2014)”. In addition, despite a positive housing outlook for 2015, there are still millions of
homeowners whom are non-responsive to lenders and in danger of foreclosure (Griffin, 2015).
There are also over three million Home Equity Lines of Credit (HELOCS) with interest rates due
to reset over the next few years on underwater homes. This could lead to new wave of mortgage
defaults in the near future (Griffin, 2015). As a result, outreach expansion would benefit
Nationstar’s overall performance in these areas.
Nationstar Mortgage Holdings, Inc.: Level of Effort
And Resources Needed for Mortgage Outreach Expansion
One of the most important lessons of servicers in recent years is proactivity has been
extremely effective in reducing default rates and establishing good rapport with consumers
(Barnard, 2014). Nationstar already maintains the business analysts and workforce needed to
improve its outreach services to its borrowers. Thus, costs to expand outreach are likely to be
minimum. In essence, improved outreach services are likely to improve loan performance and
reduce foreclosure (Barnard, 2014). Therefore the costs would outweigh the benefits.
Nationstar would need to expand marketing activities to underserved areas in offering
foreclosure alternatives. Such activities may include efforts toward borrowers who have refused
to communicate with Nationstar in the past due to anger, fear, and embarrassment (Barnard,
2014). Hence the goal of increased marketing should emphasize on making borrowers feel more
comfortable contacting their servicer when they need homeowner assistance. Nationstar must be
able to effectively drive the message that they are there to help borrowers to keep their homes as
opposed to accelerate the foreclosure process (Barnard, 2014).
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
In addition, Nationstar can utilize internet based communication, email, text messaging
and social media to advertise foreclosure prevention services while targeting underserved states.
Furthermore, offering borrower incentives like $15 dollar gift cards if borrowers qualify for a
modification, or waiving past due interest, and forgiving part of the principal are additional
strategies that may be utilized (Barnard, 2014). Proactive outreach can also be improved by
printing messages on billing statements alerting borrowers that if they have a problem, there are
options for help (Barnard, 2014).
Some costs of outreach activities may be compensated by investors. For instance,
investors like Fannie Mae, Freddie Mac, and FHA will compensate their servicer for outreach
services because they are a part of their service level agreements (Barnard, 2014). However,
some private investors may not offer the same compensation. On the downside, servicing costs
are going up so Nationstar may utilize alternative resources through partnerships and alliances.
Nationstar may expand outreach to underserved areas through partnerships with states and local
communities (Griffin, 2015). Nationstar currently maintains alliances with counselors, mortgage
companies, and other market participants (Nationstar Mortgage, 2014).
Nationstar has initially started its Community Outreach Team in May of 2013, creating
an infrastructure for partner relationships, government funding, the Hope Loan Port, and social
media (Nationstar Mortgage, 2014). The Hope Loan Port is a component of the HOPE NOW
alliance which Nationstar actively participates in (Nationstar Mortgage, 2014). HOPE NOW was
formed in 2007 and is an alliance between counselors, mortgage companies, and investors that
helps maximize outreach efforts to help homeowners in distress (Nationstar Mortgage, 2014).
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
With its alignment, Nationstar can expand on actively participating in HOPE NOW events
offered in underserved areas, and meet face to face with clients in these communities.
Last, Nationstar may continue to utilize resources through HUD approved housing
counselors and non-profit housing assistance agencies (Griffin, 2015). These resources are an
important link to connecting borrowers to Nationstar and strengthening relationships with
distressed homeowners. As Nationstar stated “Few would argue that the consumer mortgage
experience is broken, and it’s time for someone to challenge convention and status quo in the
industry,” So mortgage outreach to underserved states would be advantageous in further
improving the customer experience.
References:
C. Entrepreneurial Opportunities: Develop a list of entrepreneurial opportunities outside the confines of the company you selected. Each opportunity in your list should have supporting rationale based on your market domain evaluation and PEST analysis.
D. Entrepreneurial Assessment: Select one entrepreneurial opportunity from your list to assess. How viable is the opportunity? Your response should be supported with evidence from your market domain evaluation and PEST analysis. E. Trends: Evaluate key trends affecting the global business environment of your selected market domain. These could be geographic, political, or societal trends, or they could be trends specific to your market domain. F. Impact on Opportunities: Determine how these trends will impact the development of your selected intrapreneurial and entrepreneurial opportunities. G. Impact on Sustainability: Determine how these trends will affect the sustainability of your selected company. Which trends could be used to improve sustainable business operations?