CSBS Policy Briefings

requirement are simply program requirements that become voluntary and likely unenforceable by most states. • FHA, VA, USDA, Fannie Mae, Freddie Mac and Ginnie Mae are government established insurers, guarantors and market makers; these agencies are not financial regulators. While they are meaningful stakeholders in the prudential standards discussion, their “authority” only exist s where companies desire and volunteer to participate in these respective government lending programs. • HUD and CFPB are regulators; however, they are not primary or prudential regulators in that they lack licensing/chartering authority and limit their jurisdiction to specific areas of supervision. • There are no federal government housing agencies authorized to regulate the private and whole loan marketplace. The states are both the primary regulator (meaning the licensing authority) and the prudential examining authority for all nonbanks. However, absent these standards, the states do not have any uniform standards for financial condition or corporate governance (including risk management). Federal requirements may be considered adequate for the specific loans each agency covers, but the existing requirements do not cover the entire market and enforcement is only relevant where institutions opt to participate in a specific lending program. Only state regulators have jurisdiction over all types of nonbank mortgage portfolios. A lack of comprehensive prudential standards results in potential industry confusion, gaps in oversight and increased risk of consumer harm. Industry, through four representative associations, supported the development and approval of the standards, agreeing that state regulators are the correct body to establish prudential standards and are the only “regulator” with current authority to establish prudential standards for all nonbank servicers. • Prudential standards are necessary to ensure nonbank institutions remain healthy and well-managed through all economic cycles; comprehensive prudential standards for nonbank mortgage servicers have been publicly called for since 2014. • The states are both the primary regulator (meaning the licensing authority) and the prudential examining authority for all nonbanks; no other regulator has this role. • Proposed standards are developed to align with existing federal standards to the extent feasible, thereby limiting industry compliance burden, with the primary purpose of consumer protection and industry stability. • Nonbanks service over 77% of FHA/VA loans, making them responsible for the majority of low to moderate income borrowers, minorities and first-time homeowners - the population at greatest risk. • Despite a current lucrative housing market, many experts fear a looming foreclosure crisis due largely to the Covid-19 forbearance environment; during such event, servicer stability is key to consumer protection. • The 2017 Ocwen settlement and the 2020 Nationstar/Mr. Cooper settlement contained significant state and federal regulator findings of insufficient financial condition, as well as lapses in risk management, corporate governance and operations. • State supervisor coverage of the $11 trillion mortgage servicing market: o Nonbank share of Ginnie Mae (FHA/VA) servicing: 77% o Nonbank share of GSE (Fannie/Freddie) servicing: 54% o Combined nonbank government agency servicing: 60+% o Total nonbank servicing portion of the $11 trillion market: ~50% Talking Points

SME Contact: Chuck Cross, Senior Vice President, Nonbank Supervision & Enforcement: 202-728-5745 or CCross@csbs.org

Date Updated: September 2021

FOR STATE REGULATOR USE ONLY