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CFPB, Other Federal Agencies Developing National Servicing Standards

The ""Consumer Financial Protection Bureau"":http://www.consumerfinance.gov/ (CFPB) is working alongside other federal agencies to create ""common-sense national servicing standards,"" according to Raj Date, special advisor to the Treasury for the CFPB.


""A comprehensive approach to servicing that protects consumers, investors, the financial sector, and the housing market requires the coordinated action of many federal regulators,"" ""Date said"":http://www.consumerfinance.gov/speech/remarks-by-raj-date-at-american-bankers-regulatory-symposium/ at the _American Banker's_ Regulatory Symposium Tuesday. He added that the CFPB and other federal agencies are in the midst of that process.

One of the issues Date plans to address through national servicing standards is the recent lack of incentives surrounding a borrower's ability to repay a loan.

While typically, a lender has a vested interest in a borrower's ability to repay a loan, this has not been the case in the mortgage market in the past several years.


Loan originators were often able to sell most or all of the credit risk associated with a mortgage loan. Originators as well as brokers, lenders, appraisers, investment bankers, and ratings agencies received ""front-loaded"" awards, according to Date.

Date said the CFPB is currently reviewing a rule proposed by the Federal Reserve addressing ability to repay. The CFPB plans to issue a final rule early next year on the matter.

Date also mentioned ""misaligned incentives in mortgage servicing"" in his speech Tuesday. Specifically, he mentioned that servicing revenues are fixed, such that although servicing a delinquent loan costs dramatically more than servicing a performing loan, there is little incentive for servicers to complete the extra work or invest in extra staff to handle the added workload when a large number of loans default.

The servicing standards Date hopes to enact will apply across the industry to banks, credit unions, thrifts, financial companies, and investment banks.

""For consumers, a mortgage is a mortgage â€" and the rules should apply to all mortgages, and all mortgage lenders,"" Date said when ""speaking of national servicing standards"":http://www.consumerfinance.gov/lessons-weve-learned/ at the National Constitution Center in Philadelphia last week.

""Fortunately, Congress gave the Bureau the authority to regulate and oversee both the big banks and key non-banks,"" Date said. ""This will create competition that benefits both consumers and responsible lenders.""