CFPB Servicing Transfer Clarifications; Good Start but more needed

Over the last year or so mortgage servicers have transferred a number of large mortgage portfolios to other servicers.  Beyond the selling of mortgage servicing rights (MSR), many of the transfers have been from large traditional servicers to "specialty servicers" most of whom are supposedly better equipped for handling delinquent mortgages.  These increased transfers were prompted in part by servicing rules promulgated by the Consumer Financial Protection Agency (CFPB) which went into effect in January 2014.

The high volume of these transfers has led to concern and increased scrutiny on the part of regulators regarding potential risks to consumers.  This regulatory attention and lack of clarity attending it was problematic for servicers, many of which are non-depository institutions which have used bulk MSR transfers and corporate acquisition as a primary part of their growth strategy.

In August, to allay concern on both sides of the issue, CFPB issued a compliance bulletin advising servicers on both the sending and receiving end of bulk transfers how they should be managed and what servicers can expect from CFPB examinations which include reviews of compliance with new servicing rules. 

In a recent entry in the CoreLogic Insights, Stuart Quinn looked at these new policies and procedures and says while the bulletin is non-binding, "it does clarify the CFPB's expectations for how servicers complete these transfers.  This increased transparency and detail is beneficial to transferor and transferee parties overall and highlights the role of formal compliance programs in minimizing the risk of future penalties."

Quinn says that as a group the specialty servicers have recently grown in prominence and now represent approximately 41 percent of Ginnie Mae volumes and make up 9 and 7 of Fannie Mae and Freddie Mac's top 20 servicers, respectively.

The bulletin focuses specifically on the need for tailored transfer instructions for each deal, designing post-transfer policies such as identifying procedures for data errors and ensuring that servicers use all transferred information prior to contacting the borrower; resolving any issues that arise within days of transfer.  Continuity of any loss mitigation activities ongoing at the point of transfer are also addressed including the importance of knowing which loans have either pending or completed actions and ensuring that the systems into which the loans are transferred can process the loss mitigation data.  The Bureau said it is also considering including other examinations of post transfer policies and procedures such as ensuring that the transferee servicer uses transferred information before seeking information from borrowers.

But Quinn says that while the CFPB bulletin does provide some regulatory clarity, more work is needed because significant uncertainty still remains for servicers.  He points to required Federal Housing Finance Agency (FHFA) approval for transfers of over 25,000 loans; increased scrutiny from the Financial Stability Oversight Council (FSOC); Federal Housing and Finance Agencies Office of Inspector General (FHFA OIG) audit of GSE non-bank counterparty risk and the supervisory efforts undertaken by the New York Department of Financial Services (NYDFS).

The growing importance of specialty services means that continued regulatory uncertainty around servicing practices, capital requirements, and fees, he says, could reduce access and increase the cost of mortgage servicing. This could ultimately raise the cost of mortgage financing for prospective homebuyers.  Quinn concludes that he hopes the recent action by CFPB "serves as a catalyst for increased regulatory clarity."