Written by Steve Van Beek
Last Tuesday we highlighted the three main TILA proposed changes from the CFPB's mortgage servicing proposal. Today I wanted to delve into the mortgage periodic statement requirement a bit deeper - especially the proposed exemption for small servicers.
Proposed Exemption. The CFPB has proposed an exemption from the mortgage periodic statement for mortgage servicers that service 1000 mortgages or fewer that they originated and retained either the ownership or servicing rights. Importantly, the proposed exemption is not 1000 mortgages originated per year. Rather, it is 1000 mortgages that the CU services - which could include mortgages originated many years ago.
CFPB Assumptions. The CFPB readily admits that it "lacks the data necessary to precisely calibrate the amount of burden that would be imposed by the periodic statement requirement on servicers of different sizes." Despite this, the CFPB believes the 1000 mortgage exemption is the right level. The CFPB's explanation indicates that most loans are refinanced about every five years - which would work out to 200 mortgage originations per year to come under the proposed exemption of 1000 (5 years of 200 originations).
Based on Refinances in 5 Years. The CFPB's assumptions have some serious issues. The CFPB assumes that consumers only refinance loans with other entities. If a CU's member refinances their loan at the credit union (due to decreasing rates), that mortgage would still count toward the 1000 mortgages.
Additionally, what happens to refinance activity in an increasing interest rate market? Does the CFPB's assumption take into account that your members will not refinance or prepay their loans when rates are increasing? I think it is pretty clear the CFPB hasn't thought about that angle. While the CFPB's five year assumption was designed to reflect the current market - does it reflect the past history? Is it a workable exemption for a changing market? Does it provide relief for small servicers in both increasing and decreasing interest rate markets?
Proposed Exemption - Comments Requested. Given the above, it is very important to remember the CFPB will be accepting public comments on their proposed exemption. The CFPB specifically requests comments on the small servicer exemption for periodic statements:
"The Bureau seeks comment on all aspects of the proposed exemption, particularly whether the regulation should exempt small servicers, and, if so, whether the proposed scope and definition of a small servicer is appropriate. Specifically, should the test be the one proposed regarding origination, and is 1,000 or less the appropriate size threshold? The Bureau particularly requests data on implementation costs and the level of general activity by small servicers. The Bureau also seeks comment on whether it would be appropriate to exempt small servicers from other elements of the proposed servicing rules under TILA and RESPA." (Page 97).
NAFCU's Regulatory Affairs team will be issuing a Regulatory Alert to NAFCU members highlighting the proposed changes and soliciting comments - including on the proposed exemption - to pass along to the CFPB. Now is the best time to analyze this issue and provide your comments as it is very difficult to get exemptions increased or altered after the regulations are finalized.
Special 3-Hour NAFCU Webcast. On September 5th, I'll be doing a 3-hour webcast "Inside the CFPB's Mortgage Proposals" where we'll look at the proposed mortgage periodic statement requirement (including the proposed exemption) in more detail. Sign up by August 29th to Save $100.