The Consumer Financial Protection Bureau has expanded the small servicer exemption fivefold to include community banks and credit unions that service up to 5,000 mortgages.
CFPB officials feel these servicers deserve an exemption because they have a “high touch” approach to servicing and they have relationships with the borrowers, which gives them the right incentives to properly service the loans.
The exemption in the original servicing proposal was 1,000 loans that the servicer must hold in portfolio or originated and still services.
The Small Business Administration suggested increasing the cap to 5,000 loans because it would exempt 99% of small banks and credits unions, according to CFPB officials.
Raising it to 10,000 loans would pick up 20% of the banks with assets over $10 billion, which the bureau decided was too high.
The general thrust of the servicing rule is to ensure servicers provide troubled borrowers with options to restructure their loan and avoid foreclosure.
“Our rules will provide a fairer and more effective process for troubled borrowers who face the potential loss of their homes,” CFPB director Richard Cordray said Thursday.
The comprehensive rule that goes into effect next January also covers the mechanics of servicing when it comes to expectations for error resolution, providing informative periodic billing statements and stopping abusive force-placed insurance practices.
Small servicers will be exempt from providing periodic statements and engaging in early intervention efforts after a borrower misses two monthly payments. There also is a partial exemption regarding force-placed insurance.
But there is no exemption with respect to restrictions on dual tracking and the other parts of the final rule.