The Independent Community Bankers of America (ICBA) has called upon federal banking regulators not to limit consumers’ mortgage servicing options by imposing stricter mortgage-servicing regulations on community banks. In a comment letter to regulators, ICBA wrote that community banks should not be penalized for servicing the loans they originate for their customers. ICBA noted that stricter standards risk driving community banks out of mortgage servicing, which would lead to fewer choices and poorer service for borrowers.
“The agencies should be encouraging community banks to retain the mortgage-servicing rights of the loans they originate,” ICBA wrote. “Community banks are uniquely adept at providing a level of customer service that takes into account the financial condition of the borrower and their ability to meet the required loan covenant and payment obligations.”
Imposing stricter mortgage-servicing rules under Basel III capital standards would drive community banks out of mortgage servicing, leaving the business to larger and riskier nonbank servicers, ICBA wrote. The association noted that these larger nonbanks view mortgage servicing as a commodity business driven by large volumes and economies of scale, which results in poor customer service and conflicts of interest. Larger mortgage servicers are often less sensitive to the needs of local communities, unlike community banks, ICBA wrote.
ICBA continues to support a community bank exemption from the Basel III treatment of mortgage-servicing rights. Specifically, ICBA is calling for financial institutions in the United States with consolidated assets of $50 billion or less to be allowed to continue to be subject to the current mortgage-servicing capital regulations and not the harmful provisions of Basel III.
ICBA also noted in its comment letter that Comptroller of the Currency Thomas Curry recently brought attention to his agency’s concern that mortgage-servicing rights are moving from bank servicers to non-bank firms as a result of the new capital rules.
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