CFPB Servicing Transfer Clarifications; Good Start but more needed

Over the last year or so mortgagernservicers have transferred a number of large mortgage portfolios to otherrnservicers.  Beyond the selling ofrnmortgage servicing rights (MSR), many of the transfers have been from largerntraditional servicers to “specialty servicers” most of whom are supposedlyrnbetter equipped for handling delinquent mortgages.  These increased transfers were prompted inrnpart by servicing rules promulgated by the Consumer Financial Protection Agencyrn(CFPB) which went into effect in January 2014.</p

The high volume of these transfers hasrnled to concern and increased scrutiny on the part of regulators regarding potentialrnrisks to consumers.  This regulatoryrnattention and lack of clarity attending it was problematic for servicers, manyrnof which are non-depository institutions which have used bulk MSR transfers andrncorporate acquisition as a primary part of their growth strategy.</p

In August, to allay concern on bothrnsides of the issue, CFPB issued a compliance bulletin advising servicers onrnboth the sending and receiving end of bulk transfers how they should be managedrnand what servicers can expect from CFPB examinations which include reviews ofrncompliance with new servicing rules.  </p

In a recent entry in the CoreLogic Insights, Stuart Quinn looked at thesernnew policies and procedures and says while the bulletin is non-binding, “itrndoes clarify the CFPB’s expectations for how servicers complete theserntransfers.  This increased transparencyrnand detail is beneficial to transferor and transferee parties overall andrnhighlights the role of formal compliance programs in minimizing the risk ofrnfuture penalties.”</p

Quinn says that as a group thernspecialty servicers have recently grown in prominence and now representrnapproximately 41 percent of Ginnie Mae volumes and make up 9 and 7 of FanniernMae and Freddie Mac’s top 20 servicers, respectively.</p

The bulletin focuses specifically onrnthe need for tailored transfer instructions for each deal, designingrnpost-transfer policies such as identifying procedures for data errors andrnensuring that servicers use all transferred information prior to contacting thernborrower; resolving any issues that arise within days of transfer.  Continuity of any loss mitigation activitiesrnongoing at the point of transfer are also addressed including the importance ofrnknowing which loans have either pending or completed actions and ensuring thatrnthe systems into which the loans are transferred can process the lossrnmitigation data.  The Bureaurnsaid it is also considering including other examinations of post transferrnpolicies and procedures such as ensuringrnthat the transferee servicerrnuses transferred information before seeking informationrnfrom borrowers.</p

But Quinn says that while the CFPBrnbulletin does provide some regulatory clarity, more work is needed because significantrnuncertainty still remains for servicers. rnHe points to required Federal Housing Finance Agency (FHFA) approval forrntransfers of over 25,000 loans; increased scrutiny from the Financial StabilityrnOversight Council (FSOC); Federal Housing and Finance Agencies Office ofrnInspector General (FHFA OIG) audit of GSE non-bank counterparty risk and thernsupervisory efforts undertaken by the New York Department of Financial Servicesrn(NYDFS).</p

The growing importance of specialtyrnservices means that continued regulatory uncertainty around servicingrnpractices, capital requirements, and fees, he says, could reduce access andrnincrease the cost of mortgage servicing. This could ultimately raise the cost</bof mortgage financing for prospective homebuyers.  Quinn concludes that he hopes the recentrnaction by CFPB "serves as a catalyst for increased regulatory clarity."