Foreign Controlled Industry Firms On The Government’s Radar Now

HUD Begins To Dig Deep On Foreign National Influence In The Industry

The title of the article sounds like a late night Trump tweet. The only problem is that the Japanese now control nearly three quarters of all Mortgage Field Service Prime Vendors in the United States. The only problem appears to be that the firms being acquired by New Residential Investment Corporation are not to keen on the reporting requirements they are obligated to follow. Part of those requirements pertain to informing the US Department of Housing and Urban Development (HUD) of their sale if they are Prime Vendors upon the HUD Management and Marketing (M&M) Asset Manager (AM) or Field Service Manager (FSM) contracts. Here is how a Senior HUD official put it, with respect to the HUD M&M FSM side,

Since it’s [Redacted], it’s going to prompt a similar review/approval process, as it will be classified as a Novation Agreement.  Do you know whether [Redacted] is actively involved in the pre-conveyance servicing?  That was the big sticking point during the AMS/MCS merger last time.  It doesn’t look like the deal is expected to close until 4th quarter of 2019, so it will give HUD a bit of time to react before it goes final.

On the HUD M&M FSM side it was put like this,

We’re dealing with a number of potential COI, contract administration and protest issues relative to the Chronos purchase.  However, [Redacted].  The laws that you are referring to relative to sale or transfer of assets would be encompassed under what’s known as a Novation Agreement.  I can say that HUD has not approved a Novation Agreement at this point, and it is possible that Chronos would lose their existing contracts if HUD elects not to approve.

Today, Guardian Asset Management, Chronos Solutions, Ocwen, and Altisource are owned by New Residential Investment Corporation. Xome and Assurant – Field Asset Services are controlled by Nationstar, formerly owned by New Residential. Spectrum Field Services was recently sold off to a proxy firm Foreclosurepedia believes was orchestrated by Matt Martin, the former owner of Chronos Solutions. One Belt, One Road, as the Chinese would say.

So, who is the New Residential Investment Corp (NRIC)? Its parent, Fortress Investment Group, are the controlling arm of NRIC. And pay attention here class because the ride gets bumpy:  Fortress was purchased by SoftBank, a Japanese technology firm for $3.3 billion in 2017, whose owner is CEO Masayoshi Son, currently the richest man in Japan. The Wall Street Journal had this to say, about SoftBank Group, recently,

SoftBank Group is leaning on its employees, including Chief Executive Masayoshi Son, for cash as the firm rushes to raise an ambitious technology fund amid volatile markets.

The Japanese company plans to lend up to $20 billion to its employees to buy stakes in its second giant venture-capital fund, people familiar with the matter said. Mr. Son may account for as much as $15 billion of that amount, some of the people said.

It is an unusual setup that would doubly expose SoftBank to a startup economy that is starting to show cracks.

I digress. Fortress bought Nationstar in 2006 and took the company public in 2012. Then, in 2017, Nationstar was scooped up by WMIH, Washington Mutual’s former parent and a formerly bankrupt firm in a similar space. In a slight of hand trick, WMIH did a reverse stock split and re-branded itself and Nationstar under the moniker of Mr Cooper. This is important as Nationstar now controls Xome, which recently acquired Assurant – Field Asset Services.

During the same period, between 2017 and 2018, “[NRIC] agreed to pay Citigroup $950 million for servicing rights on Fannie Mae and Freddie Mac backed loans with $97 billion of outstanding balances.”  We also know that NRIC bought a substantial chunk of Ocwen — literally in shares and servicing — and Altisource. HousingWire had this to say in August, 2017,

Specifically, the companies said entered in an 8-year Cooperative Brokerage Agreement, which covers the $110 billion Ocwen MSR portfolio, as well as an approximately $6 billion non-agency MSR portfolio that New Residential agreed to acquire from PHH in December 2016.

NRIC, during the same period of time went on an additional buying frenzy and acquired and re-branded New Penn Financial. And in a final bite, NRIC ate up the bankrupted Ditech Financial whose second bankruptcy caused the bankruptcy of its owned firm Reverse Mortgage Solutions. It is in this deal that both NRIC and Mortgage Assets were both used as “stalking horse bidders” with respect to the handling of Reverse Mortgage Solutions, the now bankrupt provider of reverse mortgage servicing for HUD.

It is not simply the fact that the Industry has been veritably bought out by a foreign national with ties to Communist China and Saudi Arabia. It is the fact that these purchases appear to be occurring with the intention of controlling the cycle from origination to distressed asset resale. Now, I am not one to throw out legalese; however, Conflict of Interest (COI) comes to mind.

And it isn’t getting any better.

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