The new servicing rules proposed by the Consumer Financial Protection Bureau (CFPB) would have minimal impact on the operations of the large residential mortgage servicers. Small to mid-sized servicers, however, would find the operational changes the CFPB proposes both challenging and costly to implement.
The new CFPB rules would set consistent standards across the servicing industry, a welcome development that is positive for RMBS. Servicing in the RMBS sector has been in need of consistent, documented servicing guidance for some time and the CFPB rules, in conjunction with previous enforcements, make significant strides towards that end. Adherence to the guidelines would both improve the quality of servicing in the RMBS sector and help to restore confidence in the servicing industry as a whole.
The CFPB’s proposed new servicing rules would have a minimal impact on the large servicers because they have already been revamping their operations following the federal consent orders in 2011 and the National Mortgage Settlement (the AG Settlement) in early 2012. Although the CFPB rules expand and build on the servicing guidelines set forth in these enforcement actions, the necessary changes to core servicing practices and systems have, for the most part, already been implemented by the larger servicers.
There are some supplementary changes that the larger servicers would have to make. The changes would range from the timing and wording of borrowers’ billing statements and ARM adjustment notices, to evaluations of charges and revamping of notices for forced-placed insurance, as well as updates to borrower contact protocols related to loss mitigation and servicer error resolution. Although these changes will certainly increase costs, they are unlikely to have a significant impact on operations.
The new rules would have a more significant impact on the small- to mid-sized servicers. For example, servicers that did not implement a single point of contact (SPOC) strategy for borrowers, which was quite challenging and costly for large servicers to adapt, will encounter significant hurdles in revamping their organizational structure. Many small servicers will find the cost of implementing the rules prohibitive, because the rules require them to change borrower notices, implement new contact strategies, update compliance procedures and make core system changes. The cost pressure would be another factor supporting the ongoing consolidation in the mortgage servicing industry as well as the increase in the transfer of servicing to specialty servicers that are more equipped to handle loans in a “high-touch” fashion. The CFPB is contemplating the impact of the rules on very small servicers, those with fewer than 1000 loans, and the extent to which the CFPB will have to adjust the rules for them.
Gene Berman, assistant vice president-analyst at Moody's, and Linda Stesney, managing director-structured finance at Moody's, contributed. Republished by permission from Moody’s.