CFPB highlights bank/nonbank split in servicer size tiers

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The nonbank share of large mortgage servicing is growing, but smaller players tend to be depositories, the Consumer Financial Protection Bureau found in a new report aimed at examining regulatory impacts.

“In recent years, large nondepository institutions have taken on an increasing share of loans serviced, and at the end of 2018 six of the 10 largest servicers were nondepositories. Among small servicers, however, the bureau understands that the typical servicer is a depository institution,” the CFPB noted in the report.

The existence of the report suggests the CFPB could be considering whether or not to further adjust its servicing regulations based on institution size, and possibly based on other trends noted in the report such as institution type. The report is aimed at assessing regulatory impacts and the CFPB exempts smaller companies from some of its servicing requirements.

In addition to noting what types of institutions were concentrated in different size tiers, the bureau looked at differences in how borrowers who worked with small and larger servicers viewed lending relationships.

Nearly three-quarters of the borrowers working with small servicers said having a branch or officer nearby played a key role in their choice of mortgage lender, compared to 44% of borrowers in working with large servicers, according to the CFPB report.

The bureau also noted in its report that smaller servicers are less likely to service Fannie Mae, Freddie Mac or government loans, are more likely to serve rural markets, and had better recession-era loan-performance track records.

For large servicers, the share of outstanding mortgages delinquent by 90 or more days was near 5.5% at its post-recession peak in 2009. But for mid-sized servicers that number was closer to 4.5% and occurred a few years later. For small servicers, the post-recession peak was roughly 2.5% and occurred closer to 2010.

Loan product mix can play a large role in performance discrepancies between different servicers but, according to the CFPB’s study, the trends are consistent in homogeneous products.

The CFPB’s definitions for the different size tiers examined in the report are based on the number of loans serviced as of Sept. 30, 2018. Those categories are defined as follows: small, no more than 5,000 loans; mid-size, between 5,000 and 30,000 mortgages, and large, more than 30,000 loans.

Current exemptions the CFPB has apply to certain servicers or affiliates that tend to 5,000 or fewer loans. To be exempt, a small servicer or its affiliate also must be the creditor or assignee for the loans.

Small servicers account for just 14% of outstanding mortgages, but the bureau's estimates suggest 95% if bank and credit union mortgage servicers are small.

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Servicing Law and regulation Nonbank Credit unions CFPB