The Consumer Financial Protection Bureau (CFPB) maintains it doesn’t want to impose burdensome or unnecessary regulations on small banks and credit unions that service home mortgages, but the agency is having a hard time getting its message across.
CFPB director Richard Cordray recently told a congressional panel that small institutions have a close relationship with their customers, saying these community-based firms “are very high touch with their customers and don’t necessarily have to be held to all the same requirements and standards” as larger, megaservicers.
But Cordray’s views are not reflected in a mortgage servicing proposal the bureau issued for public comment earlier this month.
The agency’s proposal exempts small servicers from just one of the nine categories in the proposal – and to qualify for the small servicer exemption, a community bank cannot service more than 1,000 loans.
“We are disappointed that the small bank exemption did not apply to more aspects of the rule,” said Ron Haynie, executive vice president of the Independent Community Bankers of America mortgage services.
In regard to the 1,000-loan threshold, he said it should be higher.
The American Bankers Association (ABA) was not pleased with CFPB’s proposal either. “We appreciate that they are trying to be understanding of the community bank servicing model,” said ABA vice president Krista Shonk. However, ABA will be talking with its members and gathering data about their lending and servicing operations to “figure out what the appropriate threshold is,” she told ASR sister publication National Mortgage News.
The 1,000-unit servicing exemption threshold could cover a fair amount of small banks with $100 million to $150 million in assets. But there are a whole group of larger community banks and “it isn’t going to help them,” Haynie said.
If a bank sells and services loans for the GSEs, they are already meeting most of CFPB’s loss mitigation requirements.
“Community banks have a vested interest in making sure that their customers receive high-quality servicing,” the ABA vice president and senior counsel said.
“They want to retain them as customers, manage their retirement accounts, provide them with business loans and car loans.”
She noted that ABA will be looking to apply the small servicer exemption to more parts of the rule.
CFPB has proposed to exempt small servicers from providing homeowners with a monthly statement that shows the borrower’s payment status and any fees or additional charges assessed by the servicer. “We are grateful for the exemption,” the ICBA executive said.
But CFPB did not exempt small servicers from providing advance notice to borrowers with adjustable-rate mortgages of an upcoming increase in their payments.