The Consumer Financial Protection Bureau drew praise Thursday for exempting smaller servicers — or those with 5,000 or fewer loans — from its new rules governing mortgage servicing.
Despite the mortgage industry's subdued reception to the guidelines, a few analysts questioned whether the CFPB's loan modification guidelines, in their current form, will further delay foreclosures in states already dealing with foreclosure backlogs.
One CFPB servicing rule forces servicers to give borrowers enough time to submit loan modification applications before foreclosing. This means servicers cannot file a first foreclosure notice or action until a borrower is at least 120 days delinquent.
"This 120-day mandate may run contrary to the push in a number of states to expedite the foreclosure process, a push that has been tacitly supported by the release of the Federal Housing Finance Agency’s state-level g-fee increases," analysts with Compass Point Research & Trading said Thursday.
Still, Compass Point says the average foreclosure timeline is 396 days, making the 120-day rule unlikely to cause a major ripple.
At times, the rule seems redundant since it mirrors provisions set up as part of the $25 billion national mortgage servicing settlement with big servicers in 2011.
"A number of previous efforts – specifically the AG Servicer Settlement – already instituted an end to dual-tracking on loans serviced by the nation’s largest servicers, but this rule solidifies the prohibition for all mortgage servicers," Compass Point said.
The big win is for community banks and credit unions, analysts assert.
Compass Point says the original servicing proposal only exempted servicers if they handled 1,000 or fewer loans. In the final CFPB rules, the exemption threshold has been lifted to include firms servicing 5,000 loans or fewer.
"This is a meaningful win for community banks as the exemption should cover the vast majority of the industry," Compass Point added.
The National Association of Federal Credit Unions agrees with this sentiment.
"We very much appreciate the CFPB’s raising the small issuer exemption to 5,000 transactions from parts of the mortgage servicing rule, yet we remain concerned as to the ultimate regulatory costs, given that credit unions have been and continue to operate using solid, traditional lending practices and are second to none in servicing their members’ mortgages," said NAFCU President and CEO Fred Becker Jr.
The Mortgage Bankers Association also expressed it's overall acceptance of the rule, saying it appreciates the CFPB's inclusiveness in the rulemaking process.
"An initial reading of the summary indicates that there are some issues that still concern us," said MBA CEO David Stevens.
"For example, the definition of ‘small servicer’, while improved, may still be too narrow and there may be inconsistencies between the new rules around dual tracking and existing timelines mandated by Fannie Mae, Freddie Mac, FHA and the states."
But, overall, Stevens was positive.
"The objective of this effort is the right one – create one set of rules so that borrowers know how they will be treated and servicers know what is expected of them," he said.