Proposed CFPB Rules May Increase Compliance Costs, Drive Servicer Consolidation

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Both Fitch Ratings and the Mortgage
Bankers Association have reacted to the Consumer Financial Protection Bureau’s (CFPB)
proposed rules for mortgage servicers which were released on Friday.  The rules, now posted for a sixty-day comment
period, cover servicer protocols when dealing with mortgage servicing in
general and with borrowers having financial difficulties.

Fitch said that in general it views the proposed rules positively because, if implemented,
they would set consistent standards for all servicers, including smaller
nonbank entities “that have thus far avoided the mandated changes.”  Fitch, however, warned that the rules, like other
servicing focused initiatives, will further increase compliance costs.   

The proposal builds on many of the
changes already implemented under the consent orders and settlement between banks
and several state Attorneys General including extensive changes or enhancements
to procedural, staffing, and technology procedures.  However, Fitch said these rules governed only
the actions of the largest banks and CFPB has effectively extended their scope
to govern both banks and nonbanks of all sizes and types.  “While these changes should be manageable for
larger banks, Fitch Ratings believes their impact will be most directly felt by
smaller institutions due to the higher impact of compliance costs.”  These new rules will further increase
compliance costs for the industry and potentially drive further consolidation
within mid to smaller servicers.

David H. Stevens, President and CEO
of MBA issued a statement on behalf of the Association applauding CFPB for
moving forward with proposed rules which he said his group supports if they
ensure appropriate and uniform protections for borrowers.  Equally important, standards must allow
lenders to operation efficiently and meet any legal or contractual obligations
to their investors. It is important that the final rules do not give preference
to one business type over another and also essential that they do not inhibit
industry innovation or discourage new market entrants, Stevens said.

MBA has begun the process of reviewing
the proposed standards and Stevens said he is confident that final rules can be
achieved which will create more confidence and certainty in the real estate
industry for borrowers and servicers alike.

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