Nationstar Generally Did Not Meet HUD Requirements When Providing Loss Mitigation to Borrowers of Delinquent FHA-Insured Loans

We audited Nationstar Mortgage, LLC’s (doing business as Mr. Cooper (Nationstar)) compliance with the Federal Housing Administration’s (FHA) requirements for providing loss mitigation assistance to borrowers after their COVID-19 forbearance ended. We concurrently conducted a nationwide audit of servicers’ compliance with the U.S. Department of Housing and Urban Development’s (HUD) COVID-19 loss mitigation requirements (HUD Office of Inspector General (OIG) Report 2023-KC-0005). This audit complements that audit by examining how a single provider, Nationstar, provided loss mitigation for borrowers coming out of COVID-19 forbearance. We selected Nationstar after completing a risk assessment in 2021 that identified a significant volume of delinquent loans with prior COVID-19 forbearance in its portfolio and based on our awareness of complaints made about Nationstar to the Consumer Financial Protection Bureau and the HUD OIG hotline. Our audit objective was to determine whether Nationstar provided proper loss mitigation assistance to FHA-insured borrowers after the COVID-19 forbearance ended. Nationstar did not provide proper loss mitigation assistance to more than 80 percent of borrowers with delinquent FHA-insured loans after their COVID-19 forbearance ended. Based on a statistical sample drawn from a universe of 4,288 FHA-insured forward loans totaling $767 million, Nationstar did not meet HUD’s requirements for providing assistance to an estimated 3,572. Based on our loan sample projection, more than half of the borrowers received incorrect loss mitigation assistance. In these cases, Nationstar did not provide the loss mitigation option for which borrowers were eligible, incorrectly calculated loss mitigation options, did not reinstate arrearages, or declined loss mitigation in error. More than one-third of the borrowers in our sample projection received the correct loss mitigation option; however, Nationstar did not correctly follow COVID-19 loss mitigation guidance for these borrowers.