CFPB Needs Plan to Review Impact of Servicing Rule

Community banks and their credit union counterparts collectively owned mortgage servicing rights that were valued at around $3.1 billion
as of Sept. 30 of last year.

But new rules implemented since the financial crisis intended to protect consumers and strengthen the financial services industry have increased costs for the sector.

That was according to Mortgage Servicing – Community Lenders Remain Active under New Rules, But CFPB Needs More Complete Plans for Reviewing Rules from the Government Accountability Office.

The GAO conducted the study in response to being asked to review the effect of the rule changes on these smaller financial institutions.

“GAO analyzed financial data, reviewed relevant laws and documents from regulatory agencies, and interviewed 16 community lenders selected based on size and volume of mortgage servicing activities, as well as industry, consumer groups and federal officials,” the report stated.

According to the report, community lenders serviced about 13 percent of mortgages as of last year. That was around double the share in 2008.

Still, large banks service more than half of residential loans.

Many of the servicers interviewed by the GAO indicated that the rules have increased costs like staffing expenses and system updates.

“However, many also stated that servicing mortgages remained important to them for the revenue it can generate and their customer-focused business model,”
the report stated.

While new capital rules have been imposed on the treatment of MSRs,
the GAO said that the rules appear unlikely to affect most community lenders’ decisions to sell or retain MSRs.

In the third-quarter 2015, the GAO found that roughly just 1 percent of community banks had to limit the amount of MSRs counted in their capital because of the amount of assets they held.

But a few of the banks that the GAO interviewed with large MSR concentrations indicated they were considering selling MSRs or making changes to their capital.

Market participants, however, told the GAO that MSR capital treatment was only one of several factors influencing their decisions.

The report said that most credit unions are unlikely to be impacted by by separate capital rules for credit unions.

“For example, credit unions told GAO they did not expect to make changes to their MSR holdings and one credit union explained that it is because MSRs represented a small percentage of their overall capital,” the report stated.

Although bank regulators have
included the capital rules in a retrospective review of all their rules required by statute, the CFPB’s plans for retrospectively reviewing its mortgage-servicing rules are incomplete.

“CFPB has not yet finalized a retrospective review plan or identified specific metrics, baselines and analytical methods as encouraged in Office of Management and Budget guidance,” the report said. “In addition, GAO found that agencies are better prepared to perform effective reviews if they identify potential data sources and the measures needed to assess rules’ effectiveness.”

CFPB officials, though, said it was too soon to identify relevant data. They want flexibility to design an effective methodology.

But the GAO said that without a completed plan, the bureau risks not having enough time to perform an effective review by the time it has to publish a report of its assessment in January 2019.

The GAO concluded that the CFPB should complete a plan to measure the effects of the new regulations. Specific metrics, baselines and analytical methods need to be included in the plan.

The bureau reportedly agreed to take steps
to complete its plan for conducting a retrospective review of the rules and refine the review’s scope and focus.

Credit unions seem pleased with the report.

“The GAO report confirms our concerns that CFPB’s mortgage servicing rules are impacting credit unions,” National Association of Federal Credit Unions Executive Vice President of Government Affairs and General Counsel Carrie Hunt said in a statement. “Furthermore, the findings underscore the fact that increasing compliance costs have impacted customers’ costs and choices.  The report notes that several institutions no longer offered customers certain products because offering them would necessitate additional regulatory requirements.