Could Prudential Standards for Nonbank Mortgage Servicers be Eased?

From The Desk Of The “Om-Bobs-Man”

Insider

Bob Niemi

The Conference of State Bank Supervisors (‘CSBS’) published a white paper last September on Prudential Standards for Nonbank Mortgage Servicers. Noting the growth of nonbank entities specializing in mortgage servicing, CSBS proposed an increased baseline of standards for state regulators to utilize in their regulatory oversight. The industry pushed back against adopting standards that differ from existing CFPB and Federal Housing Finance Agency requirements.

Chuck Cross, CSBS Senior Vice President, was asked about the status of the prudential standards while participating on a panel for MBA’s Independent Mortgage Bankers Conference. He shared a few points on the evolution of the CSBS white paper, review of the submitted comments and next steps. He noted CSBS received 17 industry comments during the comment period. He also shared that CSBS had conducted one-on-one meetings with “much of the industry” and the MBA.

The Non-Depository Supervisory Committee (‘NDSC’) is the CSBS committee responsible for the review and recommendation to the CSBS Board. Chuck shared the NDSC has reviewed the comments and made specific Accept, Reject or Compromise determinations around the requests made. The final draft of the standards incorporated some of the comments.

The latest version focused on Capital Liquidity and Financial Condition as before, but also included recommendations on Risk Management, Data Standards for Borrower Information, Data Protection & Cyber Risk, and Servicing Transfer Requirements. Chuck also shared a few thoughts on what industry could ‘possibly’ expect from the most recent revisions.

Modifications Sought

The NDSC requested that some of the enhanced standards be modified so that Commissioners would retain the authority to act based on risk. This would remove the ‘subjective requirements’ that would need be determined on a case-by-case basis. This results in that some of the enhanced requirements will be formatted more like guidelines than actual standards. This could also eliminate the complex servicer definition and place most of the baseline standards to all non-depository servicers. Please note that these observations are subject to further review and CSBS board approval.

Chuck shared the timeline for the standards has been also updated based on the latest revisions and reformat. The expectation is for the CSBS Board to be briefed, provided time to review of the latest draft, and then a special board meeting will be held to approve the revised standards.

Then CSBS will go into implementation period with model language written and shared with industry. The approved standards will be in a formal format, but the model language and implementation plan will be brought back to the CSBS Board in the fall for update and direction.

Please note that CSBS approving the standards, model language and implementation plan does NOT make these standards regulations. Not all states currently license or supervise mortgage servicers. Most states would need to review, adopt and then draft rules to implement. A few states may be able to move straight to the administrative rule phase and a smaller few may be able to adopt under the commissioner’s current authority. However, CSBS is driving the direction.