TEXT-Fitch: final CFPB servicer rules sets consistent standards

Wed Jan 23, 2013 4:23pm EST

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Jan 23 - Fitch believes the final rules published last week by the Consumer
Financial Protection Bureau (CFPB) set uniform standards for all U.S.
residential mortgage servicers, including smaller nonbank entities that have
thus far not been subject to mandated changes. In addition, the rules are a
positive step toward improving the consistency and quality of servicing in the
industry and may ultimately foster greater confidence in the sector. However,
similar to other servicing-focused initiatives, the CFPB rules will further
increase compliance costs for the industry, extend timelines, and potentially
drive further consolidation within mid to smaller servicers. The rules are
effective for all servicers on Jan. 10, 2014.

The CFPB final rules build on many of the changes to servicing practices
implemented under the consent orders and the settlement large banks came to with
several state Attorneys General concerning residential lending practices. All
three require extensive changes or enhancements to processes, timing of actions,
timing, and method for communication with borrowers, staffing, and technology.
However, the prior orders and settlement requirements only governed the actions
of the few largest banks.

Therefore, a key change with the publishing of the CFPB final rules is the
greatly extended scope, as they will govern both banks and nonbanks of all sizes
and types. Although the CFPB final rules do contain exemptions to some of the
rules for some servicers, these are limited to the smallest of servicers. While
these changes should be manageable for larger servicers, Fitch believes their
impact will be most directly felt by mid-sized to smaller institutions due to
the greater impact of compliance costs.

As such, Fitch believes these changes have the potential to drive further
consolidation. Large banks are expected to focus on core prime servicing and
substantially scale down their nonprime presence due to increased scrutiny and
compliance risks. Likewise, smaller entities may be pressured to exit the
business altogether due to higher compliance costs and insufficient returns.

In addition, Fitch believes that some of the provisions of the final rules have
the potential to further extend the already excessive timelines for resolution
of distressed loans.


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The above article originally appeared as a post on the Fitch Wire credit market
commentary page. The original article, which may include hyperlinks to companies
and current ratings, can be accessed at www.fitchratings.com. All opinions
expressed are those of Fitch Ratings.
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