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CSBS Changes Servicer Liquidity Policy

CSBS And MBA Encourage States To Adopt Consistently

Bob Niemi
Insider
Bob Niemi

The Conference of State Bank Supervisors (CSBS) published final regulatory standards designed to “enhance and align states’ existing authority” over nonbank mortgage servicing companies. CSBS has consistently cited need for increased oversight based on growth of nonbank mortgage servicers in the past 10 years. The potential for alignment is welcomed by the industry, hoping states do not vary from approved policy.

As signaled in a prior article, the previous proposal brought industry comment and significant engagement to align the policy with federal standards of Fannie Mae, Freddie Mac and Ginnie Mae. MBA provided detailed comment on the proposed standards and engaged in discussions as part of the development process. As a result, MBA President and CEO Bob Broeksmit expressed support for the standards with hopes that the standard that can be applied across all states.

However, not all states currently license nonbank mortgage servicers and the standards are not yet the requirements in states that do regulate nonbank mortgage servicers. The published requirements would only become effective after state regulators utilize this policy as part of their sovereign jurisdictional authority. That means each state will need to propose, debate, and consider the CSBS standards as part of their legislative process. As part of the release, CSBS encourages state regulators to stay true to the proposed standards. The final five pages of the document contain model language for states to utilize as part of this process. 

Applicability: The model standards apply to nonbank mortgage servicers with portfolios of 2,000 or more residential mortgage loans serviced or subserviced for others and operating in two or more states.  An entity owning or investing in mortgage servicing rights that is subject to licensing as a servicer in any state is considered a servicer as part of the proposed policy.

Overview: The regulatory standards focus on the servicers’ financial condition and governance. The standards would require nonbank mortgage servicers to have a minimum net worth of $2.5 million and the tangible net worth divided by total assets must exceed 6%. These policy requirements would align with Fannie, Freddie and Ginnie existing requirements.

Removed: Mortgage servicing and transfer standards were removed based on the existing coverage of Regulation X and CFPB oversight. Data protection was removed due to existing coverage of the FTC Safeguards Rule. Additional change of control proposals were also removed to keep alignment with current NMLS requirements. The enhanced capital and liquidity standards as well as the proposed stress testing and ‘living will’ for complex servicers was also removed.  

Modified: The second main category of corporate governance with standards including four sub-supervisory areas to include Board of Directors, Internal Audit, External Audit and Risk Management. Risk management programs and annual risk assessment were better defined to include providing to state regulators upon request.

The next challenge to stay true to the model language may prove to the biggest hurdle. While state regulations will vary, but industry engagement is required to keep uniformity in servicer regulation as state legislatures review and debate these standards.   

This article was originally published in the Mortgage Banker September 2021 issue.
Bob Niemi
Bob Niemi

Bob Niemi is a senior advisor at Bradley Arant Boult Cummings LLP.

Published on
Sep 08, 2021
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