Smaller banks are pushing rulemakers for an exemption to the upcoming mortgage servicing standards, claiming recent problems in the industry are almost entirely restricted to the larger firms. The Senate Banking Committee held a hearing Tuesday to consider which direction the new standards should go. When procedural problems surfaced last year, servicer shops were found to be robo-signing and losing documents, foreclosing on homeowners in the modification process, and even mishandling evictions on military families. But Jack Hopkins, CEO of CorTrust Bank, a smaller servicing shop in Sioux Falls, S.D. told the committee the higher standards would essentially put him out of business. “As this committee considers the development of national mortgage servicing standards, I urge you to ensure that they do not add to the regulatory burden of community banks, which are servicing their portfolios successfully and have not contributed to widely- reported problems,” Hopkins said. “We must preserve the role of community banks in mortgage servicing because the alternative is further consolidation in the servicing industry, which will only harm borrowers, especially those in rural and underserved housing markets.” B. Dan Berger, the executive vice president of the National Association of Credit Unions, sent a letter to Senate committee leaders Monday asking for an exemption for credit unions as well. “While it is important that the bad actors who failed thousands of their borrowers are held accountable, we would oppose extending any new compliance burden stemming from national mortgage servicing standards onto good actors such as credit unions,” Berger said. Faith Schwartz, the executive director of the Hope Now alliance of servicers, investors and counselors suggested to the committee that the Obama administration should gather regulators, state attorneys general and other rule makers when drafting the new standards in order to ensure a uniformity. Industry trade groups such as the Mortgage Bankers Association have also lobbied for a more uniform approach. “The home mortgage is the most important investment in the lives of most consumers, and it is essential that we have a sound servicing system in place to get through the current crisis and set the appropriate course for the future,” Schwartz said. CorTrust, which handles loans for Fannie Mae, Freddie Mac said it holds a delinquency rate in its servicing portfolio of 1.7% and had to complete only 23 foreclosures in 2010. Hopkins said margins in the business are already thin and forcing his firm to do additional reporting and documenting would cut into them further. A J.D. Power and Associates survey of homeowners released Monday showed an overwhelming amount of frustration with servicers. Hopkins said servicing should be used for the opposite, to help build relationships with the borrower when he or she needs to reach out. Losing this relationship could effect the rest of the operations at a smaller bank. “Loss of servicing would make it harder for community banks to compete for origination business and would thereby accelerate consolidation in that business as well,” Hopkins said. “Were this to happen, rural and small town customers in particular would be left with fewer mortgage choices, interest rates and fees would be less competitive, and customer service and product choice would suffer.” Write to Jon Prior. Follow him on Twitter @JonAPrior.