While not unexpected, industry observers said the plans could require significant technology upgrades, translating to higher compliance costs that could trickle down to borrowers.
"My initial thought is a concern that the
The proposals, which the
They would require servicers to provide clearer monthly periodic statements and advance notice of interest rate increases for adjustable rate mortgages, and impose new limits on force-placed insurance. They also call for servicers to improve the way they handle consumer accounts by immediately crediting payments, acknowledging and fixing errors within 30 days and providing direct access to foreclosure prevention teams, among other policies.
"The earlier problems with recordkeeping and other systems made it harder to sort out borrower problems" after the housing market collapsed, he said. "And instead of investing in new personnel and processes, too many mortgage services took short-cuts that made things far worse for homeowners in trouble."
The agency is also working on developing separate mortgage servicing standards in conjunction with the other banking regulators that are likely to dovetail with standards established under the
Given the upheaval in the servicing market, observers said the
"While on the one hand we can read this press release and get completely freaked out about it, I think that's premature at this point," he said. "To me this is par for the course where the bureau is carving out its territory and laying down the gauntlet that, 'We're serious about protecting consumers, and the perceived…lack of transparency and the perceived lack of accountability by the industry cannot continue.'"
"I think the fact that the director made the announcement, that the director made it clear that it would be comprehensive, these are all very important points," Mierzwinski, who attended Cordray's announcement in
Still, Dunn and others in the industry agreed the rules will put continued pressure on servicers.
"I think there will be a knee jerk overreaction, which is somewhat kind of the mode of operation these days when something doesn't work," said
Under the Small Business Regulatory Enforcement Fairness Act, the bureau must consider the impact the rules will have on smaller servicers. Cordray acknowledged that "we realize that a one-size-fits-all approach may not be appropriate, particularly for smaller institutions like community banks and credit unions," but emphasized that the rules would apply to both banks and nonbanks.
"It is important that the final rules don't give preference to one business type over any other, nor should they inhibit innovation or discourage new companies from entering the marketplace," he said.
Much of the compliance expense comes down to technology, observers said. Some servicers have systems that don't allow them to print on the back of a periodic statement, for example. Some still use low-tech coupon books that require borrowers to tear off the coupon and mail it in with a check each month.
Cook said the timeline for implementation will be a major issue. How soon would servicers be required to comply with the rules? And how much flexibility will they be given to meet the requirements laid out in the proposals? "Reprogramming the large servicing systems is an expensive and timely process, and the more you rush it the more expensive it gets," Cook said. "Any time you have compliance rules that have to be addressed by technology, it tends to drive the smaller players out of the market."
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