Hedge Fund Entrance Into Mortgage Servicing Business Alarms Both Consumers & Investors

(originally posted 10-12-07)
An article by The Associated Press reports:

• Hedge funds and private equity investors are gaining a foothold in the business of mortgage loan servicing as some of the country's biggest mortgage lenders crash into bankruptcy. Their arrival on the scene has alarmed consumers and investors alike. Over the last few months several failed mortgage lenders -- including ResMae Mortgage Co., Aegis Mortgage Corp., and New Century Financial Corp. -- have sold their loan-servicing businesses to hedge funds or private-equity firms.

[...]

• Their acquisition of loan-servicing rights, as a result, has inflamed the anxieties of many homeowners who have reported loan-servicing disruptions recently. "From a consumer perspective, it's an improvement to have these loans in a mainstream bank," said John Taylor, chief executive of the National Community Reinvestment Coalition, a collection of community groups. "It's not an improvement for them to end up in the hands of Wall Street. There isn't the conversation or the accountability." When it comes to consumer-protection regulations, Taylor said, "Wall Street has a moat around it."

For more, see Hedge Funds Enter Mortgage Arena. questionable mortgage servicing practices tactics yak MortgageServicingIssuesAlpha