Class action suit filed against Nationstar following several dismal quarters

A securities class action lawsuit was recently filed against a mortgage services provider, alleging that the firm violated federal securities laws in 2014 and 2015.

The class action claim was filed in the United States District Court for the Southern District of Florida against Nationstar Mortgage Holdings Inc., on behalf of all individuals who purchased shares in the company between Feb., 27, 2014 and May 4, 2015. The mortgage servicing company has run into a number of issues in the past, including accusations of fraud. In fact, a Facebook group called “I Hate Nationstar Mortgage,” exists. The group’s news feed includes occasional posts about the firm’s troubles and descriptions of people’s experiences with Nationstar.

Nationstar's mortgage services have come under fire with the class action lawsuit.Nationstar’s mortgage services have come under fire with the class action lawsuit.

Fast-fading prospects lead to class action suit against Nationstar
The company and some of its executives have been charged with failing to disclose material information during the class period. The class action claim alleges that Nationstar’s stock prices began to drop toward the end of 2014 for a number of reasons. These include declining financial prospects in the third quarter of 2014, the company being named in a class action suit alleging racketeering in January 2015 and terrible fourth quarter and fiscal 2014 results.

Following a bad third quarter in 2014, and an even worse fourth quarter, Nationstar on May 5 announced disappointing results for the first three months of 2015. This announcement included the reporting of a $48.3 million net loss in the first quarter, a 15 percent decline in revenues year-over-year and a $110 million write-down on the value of the company’s mortgage servicing rights. Following this news, Nationstar stock prices tumbled.

“The company allegedly failed to disclose problems with its management control.”

Claims of management issues and overcharging
Another class action suit filed against the company alleged that part of the reason for Nationstar’s diminishing value in the latter half of 2014 was the launch of a probe into the firm’s loan servicing practices by the New York State Department of Financial Services. The company also allegedly failed to disclose problems with its management control and supervision, which may have led to regulatory noncompliance. Additionally, the company was allegedly overcharging mortgagors, and engaged in illegal practices such as charging for unnecessary inspections and pressuring borrowers to undertake expensive mortgage modifications and refinances.

As Nationstar was allegedly pushing borrowers into expensive loan modifications and dealing with management control issues, it was giving shareholders a false representation of financial and business prospects, the suit alleges. The company claimed that its increased profits were due to its fast growing mortgage servicing rights portfolio, as well as earnings from its subsidiary Solutionstar, which had been contracted to provide certain loan services.

Following disclosures about the company allegedly engaging in illegal practices, as well as disclosures regarding Nationstar’s financial prospects, share prices in the company fell significantly. On May 5, the company’s common stock closed at $19.51, more than 50 percent lower than its class period high.