CSBS Issues Model Prudential Standards for Nonbank Mortgage Servicers

As advocated by the American Bankers Association, the Conference of State Bank Supervisors today published model state regulatory prudential standards for nonbank mortgage servicers. These standards—which include baseline prudential standards and enhanced prudential standards and heightened supervisory expectations for complex servicers—are intended to help align state regulation of nonbank mortgage servicers, a growing sector that is now responsible for approximately 24 million loans as of the end of the first quarter of 2021.

The model standards generally apply to “nonbank mortgage servicers with portfolios of 2,000 or more one-to-four unit residential mortgage loans serviced or subserviced for others and operating in two or more states as of the most recent calendar year-end, reported in the Nationwide Multistate Licensing System Mortgage Call Report,” however, several exclusions apply. Among other things, they include requirements for: capital, liquidity, risk management, data protection, corporate governance, stress testing and resolution planning.

States may choose whether and how to adopt these prudential standards, and CSBS noted that the model standards issued today do not establish “legal requirements and do not constitute law, regulation official guidance or interpretation of any state agency that has not taken affirmative action to incorporate these standards as such.”

ABA advocated for bank-like prudential standards to be applied to nonbank mortgage servicers, emphasizing the need for equivalent regulation and oversight between bank and nonbanks to mitigate both systemic risk and regulatory arbitrage.