Are Changes on the Horizon for the Mortgage Servicing Rule?


The Consumer Financial Protection Bureau (CFPB) recently announced updated guidance with two corrections to the 2016 Mortgage Servicing Final Rule that's slated to take effect on October 19 this year. The changes are being made in response to concerns brought up by industry participants.

In August 2016, the Bureau issued a final rule amending specific mortgage servicing rules that were issued in 2013. The Bureau is now making some changes to these 2016 amendments.

The Bureau said it is taking concerns made by industry participants into consideration. The concerns are related to specific components of the mortgage servicing rule used in August 2016. According to servicers, such components have been causing challenges in implementation that weren't initially expected when the original rule was established.

A proposal has been announced that would involve at least one confirmed change to the 2016 rule to address these concerns.

The CFPB released two documents for Regulation X (2013 Mortgage Rules under the Real Estate Settlement Procedures Act) and Regulation Z (Truth in Lending Act) that comprise the 2016 Mortgage Servicing Final Rule.

The CFPB guidance includes corrections that address typographical errors, revisions to show corrections in effective dates for certain provisions, and a citation correction. The CFPB also provided some direction in regards to the servicing rule's actual implementation date.

Amidst an environment of change, financial institutions should take the time to reevaluate their loan portfolios to boost profits and limit risk.


Servicer Concerns Are Being Addressed With the Newly Proposed Changes

Concerns have been expressed that the 2016 Mortgage Servicing Final Rule's midweek effective dates could pose some issues for servicers. Thursday effective dates would barely give many servicers the time needed to test and update their systems from the time business closes for the night on the Wednesdays before in order to remain in compliance with the recent amendments.

Servicers have plenty to do to be prepared before deadlines near. Without adequate time to ensure this work is completed properly, mistakes in servicers' systems are much more likely to occur. And the increased likelihood of errors means there is an increased exposure to risk.

In an effort to alleviate this issue for servicers, the CFPB announced that it would not take any stand of imposition on servicers if they violate the current Regulation X or Regulation Z stemming from their compliance with the final mortgage servicing rule that occurs up to three days prior to the effective dates. As such, servicers may begin adopting the final rule a bit earlier without being subject to any consequences from the Bureau as a result.

This policy direction reassures servicers that they can implement the changes to the final servicing rule on weekends before mid-week effective dates.

Mortgage Servicing Rule Amendments: Good or Bad For Industry Participants?

On the one hand, valid concerns that have been raised in the industry are being listened to and acted upon by the CFPB. Not only is this good for enhanced mortgage servicing regulation compliance, but it also shows that the Bureau is open to working with industry participants.

On the other hand, another proposal means more changes, which can always be a challenge for all industry players to have to contend with and work around. There will inevitably have to be more time and funds spent to analyze the proposal, test systems, and add and train additional staff members.

Now is the Time to Reevaluate Loan Portfolios

Amidst such a time of change in the industry, financial institutions of all asset classes would be well advised to take a closer look at their loan portfolios and reassess their strengths and weaknesses. Doing so will help boost profitability and regulatory compliance while minimizing exposure to risk. Selling non-performing assets in favor of acquiring more robust products will help create a well-balanced loan portfolio that's better able to hedge against risk while increasing profitability.