State Nonbank Servicing Plan Is ‘Duplicative,’ Groups Say
WASHINGTON — Two groups representing small and mid-size lenders say new proposed state mortgage servicing standards for nonbanks will add an unnecessary layer of regulatory burden, especially for firms servicing Fannie Mae and Freddie Mac loans.
In comment letters this week, the Community Mortgage Lenders of America and Community Home Lenders Association are calling for an exemption for small and medium-sized nonbanks from the proposal, issued jointly by the Conference of State Bank Supervisors and American Association of Residential Mortgage Regulators.
The rapid growth of specialty mega-servicers does not “justify imposing new CSBS prudential standards on small servicers, particularly on firms that grow servicing portfolios organically through origination of loans,” the Community Home Lenders Association said in a June 22 comment letter.
The March proposal would impose baseline standards for all nonbank mortgage servicers that obtain state licenses. The baseline standards would cover capital, liquidity, risk management, data standards, data protection, corporate governance and other areas.
“The nonbank mortgage servicing industry is very diverse, ranging from very small firms with straightforward operations to large and complex entities with multiple business lines,” said Rod Carnes, president of AARMR and the Georgia deputy commissioner for non-depository financial Institutions, in a March 25 press release. “By relying upon existing standards and generally accepted business practices, we hope to minimize regulatory burden for small, less complex firms, while still incorporating a comprehensive regime that maintains safety and soundness and consumer protection for even the largest, most complex firms.”
But the two trade groups stressed that many nonbank firms are already subject to similar requirements since they service mostly Fannie Mae, Freddie Mac, Ginnie Mae and Federal Housing Administration loans. As a result, the groups say companies that service loans backed by the government-sponsored enterprises should be exempt from the new state standards.
“Servicers with portfolios comprised almost exclusively with FHA/VA or GSE loans are subject to net worth, liquidity and leverage requirements,” the CMLA said in a June 22 comment letter. “Any state requirements would be duplicative and unduly burdensome.”
CMLA Director Glen Corso said the additional regulation will drive more firms out of business. “Just since the beginning of the year, we have seen a couple of our members sell their companies because the regulatory compliance burden has gotten too much and they had reached their limit,” Corso said in an interview.
The two groups also want nonbank firms with less than 2,500 in serviced loans or servicing portfolios smaller than $500 million to be exempt.