Stevens: Give National Servicing Standards a Chance to Work

Mortgage Bankers Association (MBA) President David H. Stevens congratulated mortgage servicers attending MBA's National Mortgage Servicing Conference on Wednesday for surviving the past few years with the "staggering amount of change" from new rules and regulations and the "intense scrutiny of policymakers, regulators, and the news media." 

In the last year, he said, the Consumer Financial Protection Bureau (CFPB) released the mortgage servicing final rule and revisions to that rule continued nearly until the deadline for implementation last month.  The past year also saw no less than 40 new HUD mortgagee letters, new guidelines and announcements from Freddie Mac and Fannie Mae, and new requirements issued by individual states.  These changes have forced servicers to rework policies, processes, controls, and systems and to make it all work for their customers

Stevens told servicers that, with their help, MBA convinced CFPB to make several important changes to the rules before they were implemented such as abandoning a requirement that servicers accept oral requests from customers for error resolution and information, narrowing designated address requirements for communicating with borrowers, and limiting the definition of first notice to more closely match the FHA definition and conform with state laws and contractual obligations. 

The mortgage servicing business does not look the same as it did a few years ago, he said.  The top 10 servicing companies are different than those five years ago as new players entered and others expanded, contracted, or retrenched; the complexity of new rules has added to costs; there are new direct costs, unreimbursed foreclosure and REO costs as well as corporate costs of legal, risk management and technology.  All these are ultimately passed to the consumer, further tightening the credit box and dragging on the recovery.

Stevens told the servicers he had a number of areas of potential concern for the industry.  First is the need to stay ahead of the curve when it comes to defaults.  While mortgage delinquencies are down close attention must be paid to borrowers whose payments may increase as modification terms expire. 

Second, while servicers are doing everything they can to clear delinquency and foreclosure backlogs in an efficient and sensitive manner, some states keep rewriting their foreclosure procedures while in others servicers are still wading through the slow judicial foreclosure process.  Moving forward, he said, "Potential litigation around qualified mortgages threatens to delay the process even further, running the risk of turning every state into a 'quasi-judicial' foreclosure state."

The pile-on of regulations continues beyond just the national servicing standards, Stevens said. Servicing is now potentially one of the most regulated industries, facing a host of competing regulations and requirements from a myriad of different regulators and little has been done by regulators to align their regulations and to minimize duplication of efforts.

"Problematic MSR valuation provisions within Basel III, the forthcoming CFPB supervisory examinations, litigation risks, frequent rule changes by Fannie Mae, Freddie Mac, Veterans Affairs, and FHA, and more states considering their own standards only lead to more disruptions in your world and disruptions for borrowers," he said.  

He said the only recourse is to re-prioritize and adjust servicing plans to accommodate the competing interests and CFPB has pledged to continue working to strengthen servicing standards for consumers but still recognizes it is important to let servicers do their jobs efficiently and effectively.  Stevens told them his organization has an "open door" to the CFPB, and with member input will continue to work for improvements to national servicing standards and reduce conflict and duplication between them and other regulatory requirements.

Some states have tried implementing their own standards on top of the national standards, resulting in more divergence and confusion.  CFPB has addressed all the major consumer issues, he said, and everyone would benefit from a single, uniform national servicing standard.  MBA is pushing states to work with the CFPB before implementing their own standards. 

Stevens said MBA will be focusing on three major problem areas that are unnecessarily hindering servicers' ability to effectively serve borrowers.

First - debt collection.  CFPB is looking at whether all servicers should be subject to the Fair Debt Collection Practices Act.  This goes well beyond Dodd-Frank and "demonstrates a fundamental misunderstanding of the role of a mortgage servicer."  MBA, after meeting with CFPB, is encouraged that the Bureau understands the negative impacts of this approach.

Second is the alignment of regulatory requirements.  The GSEs, other agencies and investors have each overlaid requirements for borrower contact, delinquency management, and foreclosure prevention on CFPB regulations.   Consequently, servicing today requires juggling numerous, often duplicative requirements and timelines in addition to whatever requirements are imposed by the borrower's state.

Stevens said this misalignment is most clear in the imposition of GSE compensatory fees.  "Data shows that servicers now face compensatory fees not for mistakes or unreasonable delays, but simply as the cost of doing business.  In fact, approximately 70% of all GSE loans are now exceeding the standard GSE time frames, often for reasons unrelated to actions of the servicer

"As servicers work to implement the CFPB's borrower protections and deal with complex, widely variable state rules, it is a mistake for the GSEs to impose unfair fees that punish servicers for enforcing those same protections.  Fannie and Freddie must update their timelines to reflect the realities on the ground, and ensure that the process for imposing compensatory fees going forward is transparent, predictable, and reflects the stated goals of the GSEs in imposing them."

As to his final concern - exams and audits - Stevens said federal auditors and CFPB supervisory exam teams would soon be taking up space in the servicers' offices.  He urged members to make use of MBA resources to guide them through the compliance process

Stevens concluded by saying it is time for servicers to focus on what they do best, helping borrowers and bringing value to their companies.  "It's time we put the black eyes of the past behind us.  It's time for policymakers - national and state - to stop the endless, overreaching regulations and let the standards in place have time to work."