Recent investigations and regulatory crackdowns on the mortgage servicing industry may only delay income at Lender Processing Services (LPS: 28.52 -0.24%) in the near-term, the company's CEO Jeff Carbiener said Friday.
The default servicing industry has been at the center of investigations from federal regulators and the 50 state attorneys general since late 2010. Employees at many of the targeted companies were found to be mishandling various stages of the foreclosure process.
The servicers, including LPS, signed consent orders with the Federal Reserve and the Office of the Comptroller of the Currency, agreeing to establish a new framework for how delinquent mortgages are treated.
LPS reported a 23% drop in income for the first quarter as foreclosure timelines lengthened and the pipeline of foreclosure processing fees tightened. But Carbiener said the loss of revenue will only be delayed until the inevitable work through of an inventory of 4.3 million delinquent loans picks up again.
"Default services reductions were due to significant weakness in first quarter foreclosure activity. Input from our larger customers confirms that the immediate focus is on tight timeliness, which will begin to increase through second half of the year," Carbiener said in a conference call with investors. "Lower market revenue is not being lost, just being shifted to future periods."
LPS faces a slew of lawsuits from an attorney alleging the company conducted an extensive and illegal fee-splitting operation. The Michigan AG launched a probe into still surfacing documentation problems, and a bankruptcy judge has issued sanctions against the firm.
But Carbiener said LPS is not involved in the continued negotiations between servicers and the broader 50 state AG investigation, and he said the company will continue to "aggressively address the legal challenges as they arrive."
In the meantime, LPS expects its default services department to see income drop 10% for 2011 to roughly $4.8 billion. But Carbiener expects to make that up in 2012.
Carbiener optimistically pointed to several factors. The average age of a loan in foreclosure is at 368 days. Loans that have made it through the process and into the inventory of foreclosures spent 528 days without a payment. Unemployment remains at high levels, and 20% of all properties remain underwater. Once the regulatory framework is in place, Carbiener said, the work can begin again.
"It is difficult to predict final outcome, but it will not have adverse impact on business or operations," Carbiener said. "We expect to gain market share and revenue at the back half of the year."
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