This is a nytimes.com article.
The rapid growth of Caliber Home Loans, a mortgage company owned by the private equity giant Lone Star Funds, has led to a surge in consumer complaints. Now it has led to regulatory scrutiny of Caliber’s business practices.
Eric T. Schneiderman, the New York attorney general, has opened an investigation into the mortgage company, a person in Mr. Schneiderman’s office confirmed.
The investigation was opened within the past week. For several months Mr. Schneiderman’s office has received complaints from New York residents about the company’s mortgage servicing practices and questions about whether they violate federal and state guidelines. Mr. Schneiderman’s office declined to discuss the focus of the investigation, which may or may not result in regulatory action against Caliber.
Caliber is a relatively new entrant into the mortgage servicing business, but it is also one of the fastest growing, employing more than 1,000 people. The company manages 327,465 mortgages, up from 200,000 at the end of 2013.
Caliber’s growth has been fueled both by its own mortgage origination business, the purchase of mortgage servicing rights from other companies and Lone Star’s own acquisition of tens of thousands of delinquent mortgages from banks and federal housing agencies — often purchased at a 30 percent discount.
In recent months, Lone Star and its Caliber unit have become a magnet of criticism from housing advocates and housing lawyers who complain that the companies are too quick to foreclose on delinquent borrowers or to refuse to negotiate with borrowers over terms of plans to make loans more affordable.
In particular, critics have taken issue with Caliber’s standard loan modification that temporarily reduces a borrower’s payments for five years but then reverts back to the original payment terms in the sixth year, often with all the deferred payments added to the back end of the loan. The critics contend the temporary modifications merely enable Caliber to begin collecting payments on a loan that has been delinquent for many months or years, but provide no permanent relief to a borrower whose income has declined because of a financial crisis.
Ellie Pepper, an employee of the Empire Justice Center and regional coordinator for the attorney general’s homeownership protection program, said the center had worked with a number of borrowers who have been presented with a temporary five-year loan modification from Caliber.
Ms. Pepper said the problem with the standard Caliber mortgage modification is that reworked loans “don’t ensure sustainable homeownership since they ignore the underlying issue of the unaffordable mortgage payment.” At best, she said, the modifications are “kicking the can down the road” for troubled homeowners.
Jed Repko, a spokesman for Caliber, said the company was not aware of any inquiry by Mr. Scheniderman’s office.
Caliber has previously said that it is committed to “identifying solutions that allow troubled borrowers to continue to pay their mortgages and stay in their homes.” The company also said it had one of the highest loan-modification rates in the industry and its restructured loans had reduced the average borrower’s monthly payments more than 20 percent.
Formerly known as Vericrest Financial, the company’s mortgage servicing portfolio has a value of just over $71 billion, of which about $16 billion is to borrowers with poor credit histories. In 2011, Caliber’s entire mortgage servicing portfolio had a combined value of just $6.4 billion.
The company is owned by two portfolio funds of Lone Star, a $60 billion Dallas-based firm that has long taken in money from public pensions because of its history of generating average net returns of roughly 20 percent for investors.
As Caliber has grown, so have customer complaints. More than 1,000 complaints have been lodged with the federal Consumer Financial Protection Bureau, many in the past year.
Consumer complaints about mortgage companies are not new, of course. The consumer bureau reports that since it began operation in 2011, it has received 192,500 complaints from consumers about mortgages, making them the most-complained-about financial product.
For Mr. Schneiderman, the investigation into Caliber is returning to familiar turf in investigating mortgage abuses. He was a co-chairman of the residential mortgage-backed securities task force that worked with the Justice Department and other state attorneys generals to negotiate tens of billions of dollars in settlements with Wall Street banks over their mortgage practices during the run-up to the financial crisis.
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