State regulator group issues standards for nonbank mortgage servicers

The Conference of State Bank Supervisors has unveiled banklike prudential standards for overseeing nonbank mortgage servicers.

The CSBS’s board of directors on Tuesday released the model standards, which states may adopt voluntarily, after taking into account public feedback on a proposal it issued in 2020.

The standards resemble the capital and liquidity requirements proposed by the Federal Housing Finance Agency for mortgages serviced for the government-sponsored enterprises Fannie Mae and Freddie Mac. Though the FHFA’s standards apply only to Fannie and Freddie, the CSBS standards also take into account nonagency mortgages.

“The standards provide states with uniform financial condition and corporate governance requirements for nonbank mortgage servicer regulation while preserving local accountability to consumers,” John Ryan, the bank supervisor group's president and CEO, said in a press release.

The standards were created to provide heightened transparency and risk management requirements that ensure nonbank servicers can maintain the financial capacity to serve consumers and investors in the event of a liquidity crisis, the CSBS said.

The CSBS set minimum net worth requirements of $2.5 million in capital plus 25 basis points of the unpaid principal balance of residential mortgage loans serviced. Alternatively, nonbanks also can meet the minimum net worth requirements if they adhere to the FHFA’s requirements for seller-servicers, the CSBS said. Entities that service fewer than 2,000 loans will be exempt.

States can adopt the standards either through legislation or regulation. The CSBS said it is working with states to ensure that implementation is as uniform as possible.

“Companies that operate in a safe and sound manner are much better positioned to fulfill the significant requirements associated with servicing mortgage loans and assisting customers with these important financial obligations,” CSBS Board Chair and Montana Banking Commissioner Melanie Hall said in the press release.

The CSBS said it created the standards because of the massive growth of nonbanks that now service 60% of government-backed loans, up from just 6% a decade ago.

Though the CSBS does not have rulemaking or regulatory authority, the national group of financial regulators from each of the 50 states, the District of Columbia and some U.S. territories has led major efforts in recent years to streamline state supervision.

The prudential standards are one of eight priorities tied to what state regulators call advance networked supervision, a strategy to streamline nonbank licensing and supervision as well as to expand the use of data-driven platforms in risk analysis.