(Adds comment from Green Tree)

By Aruna Viswanatha

WASHINGTON, May 14 (Reuters) - Mortgage servicer Green Tree failed more than one-quarter of tests that assess how it treats struggling borrowers, a watchdog said on Wednesday, adding further pressure on nonbank servicers who have faced increasing concerns from regulators.

Green Tree, a subsidiary of Walter Investment Management Corp WAC.N , had acquired mortgage servicing rights from a unit of Ally Financial Inc ALLY.N , which had earlier entered a joint states-federal settlement that subjected it to the tests.

The report of Green Tree's failures comes from a monitor appointed by states attorneys general to review compliance with the settlement, a landmark $25 billion deal five banks including Ally entered into with state and federal authorities in 2012.

According to the report from the independent monitor, Joseph Smith, Green Tree failed eight of 29 tests that cover issues including how it collects information for loan modification requests, how it responds to complaints, and how it deals with bankruptcy filings, among others.

The tests covered Green Tree's activities in the fourth quarter of 2013, said Smith.

"We are dedicated to addressing these issues in a timely manner and are confident that the implementation of our corrective action plans will result in a positive outcome during our next review cycle," Walter Investment Chairman and Chief Executive Officer Mark J. O'Brien said in a statement.

The company's shares fell as much as 6 percent on the news.

The other banks subject to the compliance metrics, Bank of America BAC.N , JPMorgan Chase JPM.N , Citigroup C.N , and Wells Fargo WFC.N , passed all of the tests in the second half of 2013, Smith said.

Last December, Smith found some of the banks had earlier failed several tests. ID:nL2N0JJ182

"Overall, I'm encouraged by the testing results within this report. I believe that these results, when compared to my previous reports, show that, under the Settlement, servicers are addressing problems quickly and effectively through focused corrective action plans," Smith said in announcing his results.

Walter Investment Management, along with Ocwen Financial Corp OCN.N and Nationstar Mortgage Holdings Inc NSM.N , have been the most aggressive nonbank acquirers of servicing rights on home loans. Walter was the ninth-biggest mortgage servicer in the country in 2013, according to industry publication Inside Mortgage Finance.

In February New York's financial regulator said he was concerned about the explosive growth of nonbank mortgage servicers, as banks have sought to unload servicing rights due to the stronger capital requirements they are subject to. [ID: nL2N0LH18O]

Ocwen was also subject to the tests based on servicing rights it acquired from the former Ally subsidiary Residential Capital, but passed all of them, the monitor said.

Last week the U.S. financial risk council also raised red flags about new, potentially risky practices by nonbank mortgage servicers, which it said are not regulated as carefully as banks. ID:nL2N0NT213

Mortgage servicers handle borrowers' accounts, processing payments and handling foreclosure proceedings.

In March, Smith found that the banks who entered the 2012 deal provided more than the $19 billion in help to struggling homeowners as required by the settlement. ID:nL2N0MF0PJ

(Reporting by Aruna Viswanatha in Washington and Peter Rudegeair in New York; Editing by Meredith Mazzilli and Andrew Hay)

((Aruna.Viswanatha@thomsonreuters.com)(202)(354-5815)(Reuters Messaging: aruna.viswanatha.thomsonreuters.com@reuters.net))

Keywords: GREENTREE SERVICER/REPORT