May 2016 - Rise and Fall

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TH E M R EP O RT | 51 O R I G I NAT I O N S E R V I C I N G A NA LY T I C S S E C O N DA R Y M A R K E T SERVICING THE LATEST GAO: Nonbank Servicers Need More Oversight Tasked with ensuring their compliance, the CFPB says it currently does not even have a full record of all nonbank entities servicing mortgage loans. T he Government Accountability Office (GAO) said nonbank mortgage servicers need more oversight from both the Federal Housing Finance Agency (FHFA) and the Consumer Financial Protection Bureau (CFPB) as the share of mortgages serviced by nonbanks has nearly quadrupled since 2012, according to a report released by the GAO in April. Nonbank servicers are now servicing almost a quarter (about 24.2 percent) of the nation's $9.9 billion in outstanding residen - tial mortgage loans as of June 2015, having increased from 6.8 percent in 2012. But the GAO pointed out that while the nonbank ser- vicers' portfolios have skyrocketed in the last few years, their internal controls and operating systems have generally not advanced at the same rate— an issue the CFPB and others have also pointed out. The reason for the tremendous growth of nonbank servicers' portfolios is largely the result of banks exiting the mortgage space following the financial crisis. The report, titled "Nonbank Mortgage Servicers: Existing Regulatory Oversight Could Be Strengthened," noted that the CFPB, which directly oversees nonbank servicers to make sure they are compliant with fed - eral laws that govern consumer financial protection, does not have a full record of entities under its purview because it lacks a mechanism to develop a comprehensive list of nonbank servicers. The GAO also noted in the report that the FHFA has indirect oversight over third par- ties that do business with Fannie Mae and Freddie Mac, but unlike bank regulators, the FHFA lacks the statutory authority to examine the third parties and identify risks that could affect Fannie Mae and Freddie Mac. "Congress should consider granting FHFA authority to examine third parties that do business with the enterprises," the GAO recommended. "In addition, CFPB should take steps to collect more data on the identity and number of nonbank servicers. FHFA agreed there should be parity among financial institution regulators in oversight authority of regulated entities and third parties they do business with. CFPB agreed that more data could supplement existing infor - mation but noted that the current data limitation does not materi- ally affect its work." HMDA Hits Originations, Servicing at Credit Unions The National Association of Federal Credit Unions urges the CFPB to revise its updated HMDA requirements to reduce growing regulatory burden on credit unions. T he Consumer Finan- cial Protection Bureau (CFPB) announced in October 2015 the finalization of a rule that will improve information about consumers' access to residential mortgage credit by updating reporting requirements of the Home Mortgage Disclosure Act (HMDA). The revamped rule appears to be weighing heavily on the minds of many in the mortgage industry as it brings about several new data point requirements that must be fulfilled by lenders. According to the CFPB, lenders are required to report informa - tion about home loans for which they receive applications or that they originate or purchase under the HMDA, which was enacted in 1975. The information reported is used by both the public and regulators to monitor whether the housing needs of communi - ties are being met by financial institutions, to assist in distribut- ing public-sector investment in order to attract private invest- ment where it is needed, and to identify possible discriminatory lending patterns. The National Association of Federal Credit Unions (NAFCU) Regulatory Affairs Counsel Alexander Monterrubio wrote a letter to the CFPB urging the agency to lift some of the regula - tory burden on credit unions by revising the HMDA resubmission guidelines. Monterrubio pointed out that a considerable number of data points were added to the HMDA requirements at the CFPB's discretion, and the data set grew to roughly 38 total data points, which is more than double the current reporting requirement. "NAFCU remains concerned that the tidal wave of regulation related to mortgage lending has significantly altered the market in unintended ways," he wrote. "The HMDA final rule has unde - niably required credit unions to revise their mortgage origination and servicing operations, setting off a chain of high-cost and time- intensive system upgrades." Monterrubio specifically recom - mended that the CFPB "mitigate the burden of HMDA data reporting by increasing the error percentage thresholds to reduce the likelihood of triggering the requirement to resubmit data in addition to creating a safe harbor for institutions reporting few entries on their loan/applicant register (LAR)," he wrote in the letter. In addition, he also sug - gested improving the submission process overall and developing stronger procedures to protect sensitive borrower information. "As the CFPB has repeatedly acknowledged, credit unions have not engaged in the type of practices that the Bureau is seek - ing to prevent through a modi- fied and expanded Regulation C," Monterrubio said. "And yet, the rule's compliance require- ments will undoubtedly add to the regulatory burden felt by credit unions, which drains re- sources and limits their ability to serve their members. Therefore, NAFCU and our members urge the Bureau to address the over - whelming regulatory burden by increasing the error percentage thresholds to reduce the likeli- hood of triggering resubmission and creating a safe harbor for institutions reporting few entries on their LAR." "Congress should consider granting FHFA authority to examine third parties that do business with the enterprises." —Government Accountability Office

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