The Conference of State Bank Supervisors (CSBS) recently requested public comment on proposed regulatory prudential standards for nonbank mortgage servicers. The proposal seeks to address concerns about rapid market share growth, nonbank institution size, and nonbank mortgage servicers’ financial stability and governance. The goals of the proposal are to:

  • Provide better protection for borrowers, investors, and other stakeholders in the occurrence of a stress event, in which adverse circumstances affecting one or a series of companies—or alternatively, a wider market dislocation—could result in harm;
  • Enhance effective regulatory oversight and market discipline over these entities; and
  • Improve transparency, accountability, risk management, and corporate governance standards.

The proposal includes a set of baseline and enhanced prudential standards that are to be applied to nonbank mortgage servicers and investors in mortgage servicing licensed by and operating in the states.

  1. The Baseline Prudential Standards cover eight areas, including capital, liquidity, risk management, data standards and integrity, data protection (including cyber risk), corporate governance, servicing transfer requirements, and change-of-control requirements. The baseline standards will leverage existing standards or generally accepted business practices to minimize the regulatory burden.
  2. The Enhanced Prudential Standards will be applied to mortgage servicing entities owing whole loans plus mortgage servicing rights (MSRs) totaling the lesser of $100 billion or representing at least a 2.5% total market share based on Mortgage Call Report quarterly data of licensed, nonbank-owned whole loans and MSRs (known as “Complex Servicers”). The enhanced standards will be applied to four areas: capital, liquidity, stress testing, and living will/recovery and resolution planning.

State regulators request public comment on all aspects of these proposed standards by December 31, 2020.