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CFPB / RegulatoryMortgage

S&P: Impact of CFPB shakeup, deregulation will be limited for mortgage servicers

Trump administration’s changes will not undo years of heavy regulation

Whatever happens in the legal battle over who’s actually in charge of the Consumer Financial Protection Bureau, it’s only a matter of time before President Donald Trump names an official replacement for Richard Cordray as CFPB director.

And given the Trump administration’s stated mission of decreasing regulations, it’s a fairly safe bet that whoever Trump picks will have a vastly different view of regulation than Cordray did.

But what will the impact of that looming deregulation have on mortgage servicers? Not very much, according to a recent report from S&P Global Ratings.

In the report, S&P analysts suggest that there won’t be a “major shift” in the mortgage servicing industry regardless of what the Trump administration does.

“Despite talk of potential changes to Dodd-Frank, the residential mortgage servicing industry could continue conducting business as usual,” S&P’s analysts write, adding that “more lenient” industry standards could be on the way, but suggest that the impact of those relaxed regulations will be small.

The analysts note that the servicing rule changes put in place after the financial crisis will be difficult to simply undo for servicers.

“For one, no servicer wants to be associated with following questionable strategies or practices,” the analysts write. “Furthermore, implementing regulatory initiatives in the past 10 years has been costly for servicers. It would be counterproductive for servicers to suddenly cancel these.”

S&P Global Ratings servicer analyst Steven Frie said that it simply won’t be good business to revert back to old rules and practices.

“Although a company can reduce staffing to try and compensate for a reduced control environment, it cannot recoup the investment it made in technology,” Frie said.

In the report, S&P’s analysts hypothesize that there will likely be some servicers willing to operate more freely in the newly relaxed regulatory environment, but suggest that the impact of those servicers will be limited.

“The various protocols put into place have now more or less become an accepted practice within the industry for servicers. We don't believe servicers will revert to prior practices, which led to substantial reputational and financial damage,” the analysts write.

The analysts suggest that a lack of regulation could create a “grey area” where some servicers do business in an effort to be more efficient or save costs, but overall, they believe that servicers will continue to function as they do now.

“Although some servicers may push the envelope and revert back to certain questionable practices, we believe that the servicing industry as a whole will continue to at least follow the spirit of the regulations, and some may continue to adhere to the existing rules,” the analysts conclude.

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