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The Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR) have issued for public comment Proposed Regulatory Prudential Standards for Non-Bank Mortgage Servicers. The proposal is now open for a 90-day public comment period. As the regulatory authorities of non-bank mortgage servicers, state regulators are well-positioned to design and implement a comprehensive prudential regulatory framework for non-bank mortgage servicers. State regulators have experience with and a responsibility for a diverse range of depository and non-depository financial services providers.
After an extensive review of the current mortgage servicing industry to better understand its functions and impacts on financial markets and consumers, CSBS and AARMR have determined that increased state prudential regulation of non-bank mortgage servicing companies would help achieve the following goals:
►Provide better protection for borrowers, investors and other stakeholders;
►Enhance effective regulatory oversight and market discipline over non-bank mortgage servicers; and
►Improve transparency, accountability, risk management and corporate governance standards.
“In recent years, non-bank mortgage servicers have grown in size, complexity, and importance,” said CSBS President and CEO John W. Ryan. “These firms provide critical services to homeowners and investors, and the mortgage finance system as a whole. State regulators have primary credentialing and licensing authority over these non-bank mortgage servicers, and are working to ensure our regulatory expectations are well-defined and provide for a safe and sound industry. The proposed prudential standards are integral to this effort.”
State regulators are proposing a set of Baseline Prudential Regulatory Standards (Baseline Standards) to be applied to all non-bank mortgage servicers licensed by and operating in the states.
To the extent possible, the Baseline Standards will leverage existing standards or generally accepted business practices. These Baseline Standards cover eight areas: Capital; liquidity; risk management; data standards; data protection (including cyber risk); corporate governance; servicing transfer requirements; and change-of-control requirements.
The proposal also includes Enhanced Prudential Standards that may be appropriate for large, complex non-bank mortgage servicing companies. The proposed Enhanced Prudential Standards would deploy enhanced planning, modeling, metrics and audit for: Capital; liquidity; stress testing; and living will and recovery and resolution plans.
“The non-bank mortgage servicing industry is very diverse, ranging from very small firms with straightforward operations to large and complex entities with multiple business lines,” said Rod Carnes, president of AARMR and Deputy Commissioner for Non-Depository Financial Institutions of the Georgia Department of Banking and Finance. “By relying upon existing standards and generally accepted business practices, we hope to minimize regulatory burden for small, less complex firms, while still incorporating a comprehensive regime that maintains safety and soundness and consumer protection for even the largest, most complex firms.”