State Financial Regulators Seek Comment on ‘Prudential Standards’ for Nonbank Mortgage Servicers

The Conference of State Bank Supervisors seeks public input on proposed regulatory prudential standards for nonbank mortgage servicers, as the state-regulated industry covers an increasing share of this market. 

The proposal intends to:

  1. Provide better protection for borrowers, investors and other stakeholders in the occurrence of a stress event that could result in harm;
  2. Enhance effective regulatory oversight and market discipline over these entities; and 
  3. Improve transparency, accountability, risk management and corporate governance standards.  

The public comment period began Oct. 1 and will close on Dec. 31. 

“With nonbank mortgage servicing now comprising more than 50% of the agency market, it’s critical that states have a common standard for assessing these entities’ safety and soundness and corporate governance,” said CSBS President and CEO John W. Ryan. “We look forward to receiving industry and stakeholder input as we craft final standards that enable robust oversight that balances consumer protection, prudential regulation and market viability.”

Main components of the proposal include:

  • A “scaled” approach to covered institutions, with Enhanced Standards applied to “Complex Servicers” that are generally considered to have a higher risk profile.
  • Alignment with existing and proposed federal standards to the greatest extent possible to avoid duplicative efforts and reduce regulatory burden on institutions.
  • Baseline Standards that cover eight areas, including capital, liquidity, risk management, data standards and integrity, data protection (including cyber risk), corporate governance, servicing transfer requirements and change of control requirements.
  • Enhanced Standards that apply additional coverage for capital and liquidity, plus requirements for stress testing and living will and recovery and resolution plans.

Mortgage Bankers Association President and CEO Bob Broeksmit, CMB, issued the following statement in support of the proposal:

“MBA appreciates the Conference of State Bank Supervisors’ recognition of the important role independent mortgage bankers and servicers play in today’s housing market. It is important that any final standards recognize the unique aspects of the IMB business model. Consistent adoption of these standards by the states will be critically important to this initiative.

“The proposed framework appears to address several of MBA’s key concerns – the need for uniform capital and liquidity standards across all the states, alignment with existing federal standards, and calibration to the size and complexity of the servicer. MBA looks forward to reviewing these standards in their entirety and providing our input. 

“We will continue to work with CSBS and other regulators on ways to improve the regulatory framework for IMBs to ensure a strong housing finance system without excessive regulatory burdens.”

More information on the proposal is available here or by going to and searching for Prudential Standards.