Soaring Servicer Standards Likely

By BOB NIEMI, BRADLEY

The new presidential administration has been confirmed, priorities are being laid out, and all expectations forecast a more aggressive Consumer Financial Protection Bureau (CFPB) in the next four years. The coronavirus pandemic has shown some signs of improvement, but variant strains are racing vaccine efforts while more American families are impacted. The CFPB acting director stated the Bureau will increase its supervision and enforcement efforts to ensure that companies delivering COVID-19 relief meet their legal obligations and are fully protecting families. Fair lending has also been announced as a top priority.

State mortgage regulators likewise are looking at new priorities, though not from changing administrations. Priorities mature as the evolution regulatory systems like the State Examination System, Networked Supervision and Standards for Nonbank Mortgage Servicers. State regulators are the prudential regulator for nonbank mortgage companies through the licensing and supervisory process, examinations, consumer complaint resolution, and when necessary, enforcement.

The State Examination System or SES has been in development for several years and recently has added a complaint management system. Through the SES, state regulators share supervisory oversight while making the process more efficient using a single system for industry and regulator. Examinations allow regulators to monitor activity and compliance to determine whether a mortgage company is operating in a safe and sound manner. The use of a single system improves efficiency and increases collaboration between states.

Networked supervision also focuses on combined efforts when licensing and renewing companies with shared review of data from the NMLS, company applications, and their financial documents. This ‘strategic approach’ is meant to leverage the collective intelligence from all state regulators. Yet, a trust gap still exists between the stated goals to reduce rather than increase regulatory burden and anxiety of wary licensees.

Like both previous topics, the Proposed Regulatory Prudential Standards for Nonbank Mortgage Servicers were first developed in 2015 under my term as Ombudsman. The state driven effort was to develop enhanced examination standards for mortgage servicers and capital and liquidity baselines. In the years since opening the discussion, increased growth and coordination has occurred. Nonbank mortgage servicing has experienced rapid market share growth and complexity of operations.

The new Prudential Standards cover areas including capital and liquidity, risk management, data protection standards, cyber risk, corporate governance, and change of control requirements. Also, increased coordination with federal agencies and the CFPB took place and inclusion of new examination processes related to forbearance and foreclosure responsibilities mandated by the CARES Act.

Regulators have shared that these ‘baseline’ standards as the starting point for discussion. Yet Enhanced Standards and supervisory expectations for large entities have also been forecast for entities that require increase regulatory oversight. Application of prudential standards that beyond standards already in place through other federal agencies or guarantors. Regulators must balance the impact caused by heightened prudential standards on the cost and availability of credit for consumers.

While all these are footsteps in the evolution of mortgage regulation and supervision, the trend is for growing pains and increased enforcement.

BOB NIEMI