CSBS proposes prudential standards for state-licensed nonbank mortgage servicers

State Issues Licensing Nonbank Mortgage Servicing CSBS Agency Rule-Making & Guidance

On October 1, the Conference of State Bank Supervisors (CSBS) requested public comment on proposed regulatory prudential standards for nonbank mortgage servicers. According to CSBS, the proposal is being issued to address concerns about nonbank mortgage servicers, including the rapid market share growth, institution size, and financial stability and governance. The goals of the proposal are to (i) “[p]rovide better protection for borrowers, investors and other stakeholders in the occurrence of a stress event. . .[that] could result in harm”; (ii) “[e]nhance effective regulatory oversight and market discipline over these entities”; and (iii) “[i]mprove transparency, accountability, risk management and corporate governance standards.” Highlights of the proposal include:

• Baseline Standards. CSBS notes that the baseline standards, which cover eight areas—capital, liquidity, risk management, data standards and integrity, data protection/cyber risk, corporate governance, servicing transfer requirements and change of control—will represent regulatory requirements for state-licensed nonbank mortgage servicers and will “leverage existing standards or generally accepted business practices” in order to minimize the regulatory burden.
• Enhanced Standards. CSBS is proposing enhanced standards that would apply to servicers owning whole loans plus mortgage servicing rights (MSRs) totaling the lesser of $100 billion or representing at least a 2.5 percent total market share based on Mortgage Call Report quarterly data of licensed nonbank owned whole loans and MSRs (known as “Complex Servicers”). The enhanced standards would be applied to capital, liquidity, stress testing and living will/recovery and resolution planning. Additionally, the proposal notes that regulators may determine a nonbank mortgage servicer that does not meet the definition of Complex Servicer is still subject to the enhanced standards based on “a unique risk profile, growth, market importance, or financial condition of the institution.”

Comments on the proposal are due by December 31.