To meet the overwhelming demand for credit, independent mortgage bankers have quickly adjusted to social distancing and remote working through work-from-home models previously unimaginable. With this rapid increase in the use of online and digital correspondence, today's IMBs continue to account for more than half of all new mortgages.
These rapid changes have been a cause for concern about regulatory requirements and legal requirements, as well as enforcement, for a reason. Many states and regulators unilaterally restrict and, in some cases, prohibit mortgage workers from performing their duties outside the branch. Fortunately, a patchwork of executive injunctions, temporary waivers, and non-enforcement letters has enabled the workforce to continue to work from home safely, if only temporarily. In turn, IMBs have acted responsibly and put in place policies, processes, and protocols to ensure solid monitoring of all remote workers and the security of confidential and non-public information.
We believe that the transition to a remote working model is a long-term, technology-driven transformation that was well advanced before the pandemic and will continue long after the pandemic. The Community Home Lenders Association took the lead early on on this issue with a letter to the Conference of State Bank Regulators. Working from home protects both our workforce and our customers, and ensures that mortgage loans continue to be available for the housing market. We urge state and federal regulators to address this flexibility in temporary work from home and make it formal and permanent.
Our proposal is in favor of intelligent regulation. Smart regulation doesn't require us to choose between stronger or weaker rules. Flexibility is appropriate and strengthens compliance. Enable mortgage workers to work from home without their home licensing as a branch. Allow them to work from home with no arbitrary distance to and from a licensed office. Consumers also need to be protected. Require solid company policies and procedures to ensure solid management oversight of employees. Require that consumer data and private information be kept confidential and secure.
Another problem is the requirements for non-bank mortgage services. Regulation can be effective without placing unnecessary compliance burdens or costs on IMBs and ultimately their customers. The CSBS is currently soliciting comments on a proposal to create financial and management requirements for non-banking service providers (often IMBs) in all 50 states. This is in response to the strong growth in non-bank services in the 12 years since the 2008 housing crisis. It makes sense for CSBS to ensure that the largest servicers are properly regulated. It is the few large servicers who have grown quickly and who account for most of the financial and systemic service risk. It also makes sense to fill regulatory loopholes for mortgage loans outside the agency.
However, CHLA calls for adjustments to this proposal in order to protect smaller non-bank service providers from new unnecessary burdens. These changes would support the overall goal of the CSBS to close regulatory loopholes in the oversight of service providers without hindering consumer access to credit. Smaller IMB lenders / servicers primarily provide federal agency loans – GSE, FHA, VA, and RHS loans – and are already subject to strict capital, liquidity, and corporate governance requirements from Fannie Mae, Freddie Mac, and Ginnie Mae. The proposed requirements largely correspond to the existing requirements of GSE and Ginnie Mae. Therefore, in its comment letter to the CSBS, CHLA urges that smaller service providers with de minimis levels of nonagency loans should be considered compatible with the new CSBS requirements if they are a Fannie Mae or Freddie Mac service provider (or Ginnie Mae Emitter) have a good reputation.
The letter also calls for state exemptions from the new requirements in states where a servicer has a de minimis number of loans serviced in that state. CHLA members are typical of smaller community-based lenders / servicers. They mainly issue and service loans in one or a few states, but also issue and service smaller loans in a number of states near their main states of operation. Without exceptions in states with de minimis maintenance volumes, smaller service providers will simply give up maintenance in these states.
Without these changes, there is a risk that many smaller service technicians will simply drop out of the service business and the service industry will become more concentrated, which means less competition and higher prices as well as less personalized service. The wider impact would be a greater concentration of nationwide mega-servicers, which would result in higher financial and systemic risk.
The choice is not between more or less regulation. This is how you achieve intelligent regulation. Smart regulation is the best way to protect consumers and reduce risk without placing unnecessary compliance burdens on small lenders and the consumers they serve.