Beware of Fake REOs

Our Claim: We have discovered 420 Nationstar serviced loans that we suspect are sitting in the trusts listed as a REO yet:

have previously been sold by the Trustee (REO Sale), and
no liquidation proceeds or losses have been passed through to the trust.

*We were going to use a graphic of the number 420, but we were reminded of its other meaning.

Most of these sales have occurred over 3 months ago, with some sales going back to 2013. Some sales are more recent, but that should not matter as most Pooling and Servicing agreements state that the Principal Distribution Amount shall include “the principal portion of all Net Liquidation Proceeds received during the related Prepayment Period with respect to Liquidated Mortgage Loans” and with regard to the Allocation of Realized Losses state “On each Distribution Date, Realized Losses that occurred during the related Prepayment Period shall be allocated as follows.” Where is this money?

Our Methodology: We would love to describe some sophisticated algorithm we used to come up with this claim but instead we compared the loan level servicing data provided by Nationstar on their public website to the Trustee data. We simply compared the loans that Nationstar showed going from status ‘REO’ to ‘Paid’ to both the Trustee data and Trustee report and counted the differences. We then confirmed these findings on a random 15% of these loans by locating the Special Warranty Deed,proving that the Trustee had indeed sold the REO.

Since Nationstar has only been providing all their servicing data for less than a year, we also had to look at loans that did not show up on the Nationstar servicing data but that the trustee reported as in REO. We were initially less certain of these loans, but then we verified our claim on 20% of them by locating the Special Warranty Deed, proving that the Trustee had sold the REO. In the cases where we had excellent public records data, we were spot on. We have not verified all 420, but our sample suggests that our claim is valid for most.

Our Conclusion (spreadsheet included with loan level detail):

Does this problem exist at other servicers? It did at Ocwen, but then they fixed most of it. We just don’t know with the others as they don’t supply their loan level data.

Contact us at 203-276-0672 to become a client and access all reports and attachments.