CFPB rule leaves fate of smaller servicers up in the air

The Consumer Financial Protection Bureau adjusted its final servicing rule to exempt servicers with 5,000 loans or less, but at least one analyst worries it's not enough to ensure the survival of smaller servicing shops.

"If you have 5,500 or 6,000 loans (that a firm is servicing), those are still very small servicers, and they are going to be under the same rules," said Diane Pendley, managing director at Fitch Ratings.

Pendley says larger servicing shops, which were previously under the national consent order with regulators and the Attorneys General servicer agreement, are already prepared to deal with the CFPB's national servicing standards. But smaller servicing shops, especially those previously excluded from servicing rules, could face some sticker shock when trying to comply.

"Servicers that had not been under the rules (AG settlement/consent order) will have to change and end dual-tracking," she said. "I have two fears. One is there has been a lot of consolidation in the market over the last few years. Most of these servicing changes take time and money, and you need a significant amount of loans to offset (costs from) major changes."

Pendley says it costs smaller servicers, with as little as 6,000 loans, a significant sum of money to add technology and staff to deal with new rules.

She notes, "So many of these changes go right to the pocketbook. I would not be surprised if we don't see an additional group of servicers, or their parent firms, making the decision that the liabilities, the oversight and the costs make it prohibitive for them to stay in the business."

Click here to read more on the CFPB servicing guidelines released last week.