The new Consumer Financial Protection Bureau (CFPB) mortgage servicing requirements set to come into effect on Friday will likely have a bigger cost impact on smaller servicers, according to a Fitch Ratings report.
The new provisions will increase the costs of servicing because they require more recordkeeping and infrastructure improvements. According to Fitch, “the cost of compliance with the new guidelines has likely raised the minimum number of loans that a company has to service in order to remain profitable.”
Many of the large servicers have already made significant progress towards meeting the January 10, 2014 deadline, in particular those servicers subject to mortgage servicing consent orders issued previously by government regulators.
However smaller, non-bank residential mortgage servicers may “struggle with the requirements and costs of the new servicing guidelines,” according to Fitch.
These players have increased the number of loans they servicer through strategic acquisitions of mortgage servicing rights off-loaded by larger servicers, and in particular commercial bank-held servicers.
“Smaller servicers may struggle as they seek to balance the cost of regulatory rule compliance with the need to maintain or grow their servicing portfolios, address their competitive position for new acquisitions, and manage their overall profitability,” according to the Fitch report.
Fitch said that it expected that this environment will cause further pressure for consolidation in the servicing industry.