The Housing Policy Council has weighed in on the Conference of State Bank Supervisors’ new proposed standards for nonbank mortgage servicers. In its comments, HPC suggests that regulators need to align on the regulations in order to avoid disruption.
In October, CSBS made a controversial move to issue a final rule with proposed prudential standards for nonbank mortgage servicers – standards that, if enacted, have some stakeholders, like the Urban Institute, worried.
The proposed rule addressed capital, liquidity, governance, policy related to entity survivorship and more.
And now HPC, headed by former Federal Housing Finance Agency President Edward DeMarco, is adding its voice to the comments.
“In the introduction to the Proposed Standards, CSBS recognizes the importance of nonbank mortgage servicers in the mortgage market,” HPC stated in its comment letter. “HPC agrees. Nonbank mortgage servicers are a vital conduit between mortgage borrowers and investors in mortgage loans. The mortgage market has evolved to rely on the services provided by these companies, especially for mortgage borrowers in the FHA/VA mortgage market.”
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“Given the role of nonbank mortgage servicers in the mortgage market, HPC also agrees with the stated goal of the Proposed Standards, which is to ensure that nonbank mortgage servicers are in a sound financial condition and have implemented effective risk management practices,” the letter continued.
However, HPC argued that state regulators, the FHFA and Ginne Mae would need to work together to align their policies in order to achieve this goal.
“We also recommend that CSBS develop formal protocols with Ginnie Mae and FHFA to ensure that any actions taken by Ginnie Mae or by an FHFA-regulated entity, or by a state regulator, related to the resolution of a nonbank mortgage servicer be communicated and coordinated across all those parties,” HPC stated in its letter. “Such coordination is needed to minimize both market and customer disruption in the event of the failure of a nonbank mortgage servicer.”
HPC begins by recognizing CSBS sought to align its proposed regulations with the FHFA, but pointed out that its proposal is a “higher of” construct, and that standards may always increase from those at the federal level but would never decrease.
Below is a quick look at some of the specific suggestions HPC laid out in its 12-page comment letter:
- The Prudential Standards should be consistent with federal requirements and uniformly applied and enforced by the states
- The Prudential Standards should be designed to address the unique risks of mortgage servicing and the business models of mortgage servicers
- The definition of net worth should be aligned with current practices by Ginnie Mae and the enterprises
- Liquidity standards should recognize the array of liquidity sources relied upon in normal commercial practice and the types of liquidity risk to be managed
- The liquidity requirements should be designed to cover near-term operating expenses and include a cushion to cover changes in market conditions
- Committed but unused/available credit lines should count toward the liquidity requirement
- The base requirement should reflect differences in remittance schedules
- The incremental liquidity requirement is counterproductive and should be eliminated
- A supplemental liquidity cushion for unexpected events could take alternative forms
- Stress test requirements should be based upon Ginnie Mae’s approach to stress testing
- The standard on living wills should be replaced with a standard on contingency and continuity planning that includes plans for servicing transfers and resolutions