MBA Cites Concerns over Maryland Servicing Disclosure Transfers Proposed Rule

The Mortgage Bankers Association last week submitted a comment letter to the Maryland Department of Labor, Licensing and Regulation, expressing concerns over a proposed rule that would impact several areas of mortgage industry supervision.

The proposed rule (http://www.dllr.state.md.us/regs/propreg-finreg-comar090306jan202017.shtml), issued Jan. 20, is designed, among other provisions, to clarify requirements related to delivery and receipt of mortgage disclosures and add requirements relating to mortgage servicing transfers.

In its comments (http://mba-pc.informz.net/mba-pc/data/images/AdvocacyDocuments/3 17 17 Comments on Proposed MD Rule 17-058-P.PDF), MBA expressed concerns about the latter provision, noting it creates sweeping new first-in-the-nation standards on reporting of mortgage servicing transfers. Among other details, for transfers of servicing rights covering 7,500 or more loans; the transferee servicer would be required to report certain information at least 30 days prior to the transfer date. When these pools contain loans for properties in Maryland, the reporting requirements are far more detailed.

“Critically, MBA believes that the mortgage servicing transfer provisions should receive more discussion than others in the proposal as they are far more complicated and technical,” wrote MBA Senior Vice President of Residential Policy and Member Engagement Pete Mills. “Because of their far-reaching implications for the State’s consumers and mortgage market, MBA urges that they be withdrawn from this rule, segregated by DLLR into a separate rulemaking and considered independently.”

MBA noted while the regulation only applies to entities licensed under Maryland law, it appears that the scoping could functionally pull in other entities provided a transfer meets the numeric threshold. “Any perceived benefit is outweighed by the costs to comply, which will harm Maryland licensed entities and Maryland consumers,” MBA said. “This proposed regulation should be withdrawn.”

MBA also pointed out the proposed regulation notes that a corresponding federal standard “but the proposed action is not more restrictive or stringent.” MBA disagreed, citing a federal standard from the Consumer Financial Protection Bureau through its servicing transfer bulletins that require reporting of data on significant servicing transfers and the CFPB Servicing Rule’s requirements to maintain policies and procedures to ensure the timely and accurate transfer of data when transferring servicing.

“The totality of the CFPB servicing rules regarding transfers are comprehensive, cover servicing transfers from end-to-end and apply to all servicers,” MBA said. “They address issues with transfers that the CFPB observed in the years before the rules finalization in 2014 and the recent amendments that become effective this year.”

MBA said the proposed Maryland regulation, however, goes well beyond these CFPB rules to impose affirmative regulatory reporting obligations for all transfers over a certain size threshold or for all entities that seek to grow their MSR portfolio in a given year. “There are serious questions whether this regulation could be implemented as written,” MBA said. “The information required by the regulation will most certainly increase the cost to service, disrupt the expectations of the market regarding transfer flow yet the reporting provides little to no substantive additional protections to consumers.”

These increased costs are a particularly important consideration, MBA said, as the servicing industry tries to find a “normalized” environment after years of change. “Any additional costs driven by the reporting burdens imposed in this regulation will continue to impair the economics of an industry that has seen costs rise significantly, in part due to increasing regulation,” MBA said. “In the last eight years, the fully-loaded servicing operation costs of performing and non-performing loans has increased tremendously. The increased reporting burden and state regulatory ‘friction’ introduced into the servicing transfer process will only exacerbate this upward cost trend, with negative consequences for prospective borrowers in the state of Maryland. This would have a particularly harmful impact on Maryland’s veterans and vulnerable consumers. It would also harm Maryland’s credit-worthy middle class families that depend on the federal housing programs to take advantage of the market’s relatively low rates to buy or refinance a home.”

On data security, MBA wrote that cybersecurity regulations issued by individual states without an effort to coordinate with more broadly-accepted cybersecurity requirements could lead to confusion.

“The real estate finance industry shares the concern by all financial services regulators of the threats posed by cyber criminals,” MBA said. “These threats are real and they are being conducted by foreign governments, organized crime and even terrorist organizations. That is why our member companies have invested millions of dollars to defend against those who would commit such crimes against them. However, it is important to make clear that this issue represents more than a threat to our member companies and their customers. This issue poses a danger to our national security and consequently a national solution is required.”

Where the DLLR proposal made amendments to required advertising disclosures, MBA urged consideration of its uniform ad disclosure proposal for state licensed entities (http://mba-pc.informz.net/mba-pc/data/images/3 2017 Licensing Ad Disclosure — FINAL.PDF).

The proposed rule has also captured the attention of the Maryland Assembly’s Joint Committee on Administrative, Executive and Legislative Review which on March 6 wrote to DLLR Secretary Kelly Schulz to express concern over the rule’s impact and to request a delay in its implementation to give the Committee time to examine comments submitted to DLLR.