CSBS Issues Proposed Standards for Nonbank Mortgage Servicers

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The Conference of State Bank Supervisors (CSBS) says it is now seeking input on proposed regulatory standards for nonbank mortgage servicers.

The objective of the proposal is to provide better protection for borrowers, investors and other stakeholders in the occurrence of a stress event that could result in harm; enhance effective regulatory oversight and market discipline over these entities; and improve transparency, accountability, risk management and corporate governance standards. 

The CSBS notes that the main components of the proposal include the following:

  • a “scaled” approach to covered institutions, with enhanced standards applied to “complex servicers” that are generally considered to have a higher risk profile
  • alignment with existing and proposed federal standards to the greatest extent possible to avoid duplicative efforts and reduce regulatory burden on institutions
  • baseline standards that cover eight areas, including capital, liquidity, risk management, data standards and integrity, data protection (including cyber risk), corporate governance, servicing transfer requirements and change of control requirements
  • enhanced standards that apply additional coverage for capital and liquidity, plus requirements for stress testing and living will and recovery and resolution plans

“With nonbank mortgage servicing now comprising more than 50 percent of the agency market, it’s critical that states have a common standard for assessing these entities’ safety and soundness and corporate governance,” says CSBS president and CEO John W. Ryan. “We look forward to receiving industry and stakeholder input as we craft final standards that enable robust oversight that balances consumer protection, prudential regulation and market viability.” 

The Mortgage Bankers Association (MBA) registered its initial thoughts about the proposed standards, noting that any final rules should recognize the unique aspects of the nonbank mortgage banking and servicing business model and ensure that the standards are adopted consistently among the states.

“The proposed framework appears to address several of MBA’s key concerns – the need for uniform capital and liquidity standards across all the states, alignment with existing federal standards, and calibration to the size and complexity of the servicer,” says MBA President and CEO Bob Broeksmit.

“We will continue to work with CSBS and other regulators on ways to improve the regulatory framework for independent mortgage banks to ensure a strong housing finance system without excessive regulatory burdens,” he adds.

The public comment period is open now and will close on Dec. 31, 2020.

More information on the proposal is available here.

Photo: John W. Ryan

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