Two sets of proposed rules from the nation’s consumer watchdog will push up compliance costs and drive down the number of U.S. mortgage servicers, a major ratings agency predicts. But that’s not necessarily a bad thing.
Proposed rules announced last week by the Consumer Financial Protection Bureau are designed to create uniform servicer standards. The CFPB said that the proposed regulations, which are expected to become final in January, were designed to work for residential servicers regardless of their size, location or business charter type.
However, the impact won’t be felt equally by all servicers.
While the rules would establish consistent standards for all servicers, Fitch Ratings says that the rules will increase compliance costs — leading to more consolidation among small- to mid-sized servicers of loans included in residential mortgage-backed securities.
The proposals are similar to other servicing focused initiatives.
The New York-based ratings agency explained that the CFPB’s proposal builds on many of the changes implemented under the consent orders, which were issued in April 2011, and multi-state servicer settlement with state attorneys general, which were announced in February.
“They included extensive changes or enhancements to procedural, staffing, and technology procedures,” Fitch said. “However, those rules only governed the actions of the largest banks in the agreements.
“Furthermore, the bureau indicated that it is considering additional standards yet to be disclosed.”
Smaller non-bank servicers, which have so far avoided the mandated changes, will be subject to the pair of proposed rules and face the brunt of the impact — as larger banks have the ability to manage the changes.
Still, with further consolidation and uncertainty, bigger servicers will scale down their presence because of increased scrutiny and compliance risks, and small servicers will exit because of increased compliance costs and inadequate returns.
“In general, Fitch views the proposed rules positively as they should improve the consistency and quality of servicing in the industry and may ultimately foster greater confidence in the sector,” the statement said.
