Fitch: CFPB Mortgage Servicing Changes Will Rule Out The Little Guys

New mortgage servicing standards proposed by the Consumer Financial Protection Bureau last week will likely have a shrinking effect on the mortgage servicing business, ratings agency Fitch projects. Because the servicing requirements will apply both to banks and non-banks, large and small, some of the smaller companies in the business will be unable to keep up with the rising costs of compliance, Fitch says.

“A key change with the CFPB rules is their extended scope, as they will govern both banks and nonbanks of all sizes and types,” Fitch writes. “While these changes should be manageable for larger banks, Fitch Ratings believes their impact will be most directly felt by smaller institutions due to the higher impact of compliance costs.”

Generally, Fitch views the new rules as favorable in their focus toward improvement of consistence and quality of mortgage servicing. This could lead to a more positive perception of the sector and greater confidence in general.

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“Fitch believes the rules proposed by the Consumer Financial Protection Bureau (CFPB) concerning RMBS servicers, if implemented, would set consistent standards for all U.S. residential mortgage servicers, including smaller nonbank entities that have thus far avoided the mandated changes,” Fitch writes. “However, similar to other servicing focused initiatives, the CFPB rules will further increase compliance costs for the industry and potentially drive further consolidation within mid to smaller servicers.”

View the Fitch notice via Reuters.

Written by Elizabeth Ecker

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