A national association representing credit unions urged the Consumer Financial Protection Bureau to grant exemptions and tweak proposed servicing standards that would force credit unions to hire more staff, comply with cumbersome documentation requirements and fund compliance initiatives that go beyond Dodd-Frank's statutory requirements.
Jared Ihrig, senior assistant general counsel to the Credit Union National Association, told HousingWire credit unions understand the need for financial firms to follow servicing requirements outlined in the Dodd-Frank Act. But CUNA objects to additional provisions on forced-placed insurance, high-touch servicing and compliance matters that have been laid out by the Consumer Financial Protection Bureau.
"We feel credit unions are already providing high levels of servicing to their members," Ihrig said. "And we don't believe it is fair for credit unions to be subjected to requirements that are outside the statutory mandates since the credit unions did not contribute to the financial crisis."
Ihrig's viewpoint has been argued time and again by credit unions and smaller community banks that never had their feet buried deep in the subprime lending pot or the subsequent housing crisis.
Still, the unions find themselves dealing with the same regulatory overlays placed on mortgage originators and servicers nationwide.
Handling documents alone will take on a new sense of urgency and add expenses when following the CFPB's proposed servicing outline, CUNA said. "There are going to be a lot of upfront costs that will be put in place with technology requirements to provide periodic statements (to borrowers)," Ihrig suggested.
The proposal adds to Regulation Z requirements by requiring servicers to establish and keep a certain level of information management policies and procedures in place. Financial firms also have to meet certain loss mitigation requirements, ensuring they intervene as early as possible to help delinquent borrowers. But CUNA suggests all of the extra regulatory oversight and compliance measures are not needed in the credit union space.
"There is no evidence of any systematic failure by credit unions to provide accurate information, evaluate borrowers for loss mitigation options, etc., in the absence of this regulation," CUNA stated in its proposal. "There is no evidence of any systematic failure by credit unions to intervene sufficiently early with delinquent borrowers in the absence of this regulation."
CUNA also found problems with forced-placed insurance requirements proposed in the rules. If a servicer makes insurance payments from a borrower's escrow account as outlined, they have to keep making those payments rather than creating a separate policy even if the money in the escrow account is depleted, CUNA wrote in its response.
"We feel this shifts the responsibility to the lender to mainain the homeowner's insurance," said Ihrig.
The other issue is whether this type of handling of forced place insurance creates a liability for the servicer if a borrower ends up experiencing a lapse in coverage or exposure to loss.
CUNA also objects to CFPB's proposed rule that allows a person acting on behalf of a borrower to assert a notice of error or an information request to a servicer.
"Attached to this task is the potential liability to the borrower for inadvertent release of confidential or private information, not to mention violating state and federal privacy laws and regulations, in some cases," the association wrote.
The CFPB has until late January to finalize the rules for mortgage servicers. To ensure smaller credit unions have time to comply, CUNA is requesting another 18-to-24 months from the deadline to set the compliance measures in motion.