WASHINGTON, D.C. (February 16, 2017) – (RealEstateRama) — Dave Motley, 2017 Mortgage Bankers Association (MBA) Chairman-Elect and President of Colonial Savings, F.A. and its divisions — Colonial National Mortgage and CU Members Mortgage, today delivered the following remarks at MBA’s National Mortgage Servicing Conference and Expo 2017 in Grapevine, Texas.
[Please Note: These are prepared remarks. Mr. Motley may add to or subtract from these remarks during the course of his presentation. Portions of the text may be omitted during the speech.]
Good morning, MBA, and welcome back to Texas!
I must confess that it’s nice to have this conference practically in my backyard. It’s great to have you all here this week as we prepare for the year ahead. Before we get started, let me ask you a question.
What comes to your mind when I say… white water rafting? Danger…excitement…adventure?
Now bear with me for a few minutes while I try to make some sense of this allegory.
As with any adventure sport, there is the climax of heart-pounding exhilaration followed by the resolution of relaxing calmness. When you first climb into the raft along with your five crew members and your leader guiding from the rear, you’re excited about the moments ahead. You’ve studied the river map knowing that there are some deep, rocky waters with hair pin turns, as well as some opportunities to breathe and take in the amazing scenery.
Your team is strategically placed for optimum results.
Knowing what lies ahead, having a plan for the future is key to success. You enter the water. The team begins paddling the raft in calm waters getting a feel for how it handles. Your guide is in the back calling out directions – Left paddle! Right paddle! Together paddle!
Up ahead lies the first challenge – some rocks and splashing waves. Nothing too big yet so you triumph with ease, almost as if the river WANTS to give you confidence. And although you all studied the map, you’re now in the thick of it and there’s a turn ahead with an unknown obstacle. Now the hard work begins.
As you make the turn, crashing waters thrash about through narrow passages. Your team must maneuver complex passageways and there are moments when you hear your leader shout – BRACE! BRACE! BRACE! Because paddling won’t help.
As a matter of fact, it could leave you “up a creek without a paddle.”
Now you’re through and you hear – PADDLE! PADDLE! PADDLE! BRACE! Another rocky maneuver and someone is bounced out of the raft.
Now you’re working as a team to grab your teammate before he gets stuck… “between a rock and hard place.” Luckily you get to him, he’s back in the raft and you drift to safer, calmer waters. You are triumphant!
Sticks up like “high-fives” and then you finish the river navigating other exhilarating challenges, no injuries, all paddles and people working together. Enjoy the calm waters and a cold beer.
But, what the heck does this have to do with servicing and the state of our industry today?
Well…Everything, because now is a great time to be in the servicing business -when we can enter the waters during relative calmness and plan ahead for the rough waters that will inevitably come.
The mortgage servicing industry has undergone significant changes in the last decade. Some changes have created rocky and treacherous waters with new, sometimes convoluted, regulatory standards at both state and federal levels.
Yet at the same time, regulators, investors, and consumers have raised their expectations of us for better service levels. Market share has not only diffused, but there has also been a shift away from commercial banks and thrifts to non-banks.
However, non-bank mortgage servicers in the top rankings are not a new phenomenon. In the late 1980s and early 1990s, non-depository mortgage bankers were major players in the servicing market. Non-banks continued to be important through the crisis, even stepping in to help service some of the most challenging loans.
Today, while banks still hold the majority of the mortgage servicing assets in the country, the five largest non-bank servicers saw their market share grow dramatically from 2001 and 2014.
So, while the market may have shifted, it remains relatively calm for now. The shift in the White House brings an opportunity for us to work with a more fiscally conservative, limited government, and less regulation-minded administration.
For some, this may be a good time to reexamine opportunities for entering or retaining your servicing business. And from an industry perspective, now is the perfect time to examine the servicing market, fix regulatory barriers, and preserve the liquidity and value of mortgage servicing rights, or Mortgage Servicing Assets (MSA’s).
But that being said, we know bumpy waters lie ahead.
We must achieve regulatory clarity in the servicing rules as well as resolve the CFPB’s broad authority of enforcement actions. I recognize this issue is broader than the servicing industry, but there are specifics we must tackle.
MBA fought for and achieved the national servicing standards so that everyone was operating on the same playing field. That’s the good news.
Unfortunately we still have to achieve clarity on many of the rules.
In my mind, the most significant threat to the servicing industry is the Basel III treatment of MSR’s.
The Basel III rule increases the risk-weighting of MSRs held by banks and also significantly decreases the cap on MSRs that a bank may hold on its balance sheet.
Due significantly to the new Basel rules, many banks have sold MSR assets at a record pace. In this process, some banks are losing one of their two primary relationships with retail customers; a safe and sound earning asset; and a natural hedge to the loan production side of the business.
The punitive capital treatment reduces demand for MSRs, creating a less liquid market that could result in lower prices for mortgages sold in the secondary market, and higher rates for consumers.
This seems so obvious to me! What about this do the regulators NOT understand??!!
The CFPB’s rulemaking through enforcement strategy impacts EVERY aspect of the real estate finance industry, including servicers.
The entire industry is vulnerable to punishment of activities not previously believed to be prohibited. Every week we witness enforcement actions in which the punishment doesn’t fit the crime.
It is unduly costly, reduces competition, and impacts the availability of services for consumers. Enforcement-first activities cause debilitating uncertainty about what is and what is not permissible.
Dodd-Frank also grants the CFPB discretion to target “unfair, deceptive or abusive acts or practices”, but the CFPB has yet to define exactly what these practices are.
And, don’t get me started on the Department of Justice’s overly broad use of the False Claims Act in punishing Lenders and Servicers for FHA rules infractions. Without clarity in this area, we’re AGAIN up a creek without a paddle!
Every consumer is entitled to quality customer service, timely communication, and a fair loss mitigation if they fall behind on their mortgage payments. But the complexity of the rules and resulting increased costs of compliance discourage service.
The cost to service a performing loan has increased from about $60 to nearly $160 per loan per year from 2008 to 2013, while the cost to service a non-performing loan has risen from nearly $500 to around $2,300 per loan per year over the same time period.
While some servicers have attempted to mitigate these cost-to-service increases through technological innovation, many remain challenged by legacy platforms that require time-consuming and costly changes to accommodate the latest requirements and servicing standards-which can then change again.
Harmonizing FHA, CFPB, and GSE regulatory requirements, would provide more clarity to servicers and afford borrowers better loss mitigation opportunities.
Servicers of FHA insured mortgages are bound to follow FHA servicing policies and timelines, which are not aligned with GSE timelines. FHA also has three distinct milestones which can punish servicers that start the process slowly but are able to “catch up.”
Further, FHA’s timeline requirement is a 20-year-old policy. And importantly, FHA’s zero-tolerance for possible delays in the loss mitigation protocol is contrary to the spirit of CFPB rules that encourage multiple contacts and appeal rights for borrowers. We need two things –
First – FHA needs to adopt a single unified timeline that mirrors the GSEs’ timeline, and consumers need greater opportunities for loss mitigation. FHA should also follow the GSE’s direct conveyance approach which will both reduce costs for FHA servicers and allow foreclosed properties to be purchased by new owners who want to become part of the community.
Second – National servicing standards need to be aligned with State standards. The CFPB has created comprehensive national servicing rules that all servicers must follow. Duplicative or overlapping state standards only add costs to the process with little benefits to the system.
Fragmented state regulation based on business model also has the potential to distort the market and-eventually-reduce consumer choice and access to credit.
That’s why MBA is working with the Conference of State Bank Supervisors – or CSBS – to create continuity and a unified “non-bank” framework for all states. Our goal is to achieve efficiencies and alleviate the costs introduced by duplication or fragmentation to benefit consumers as well as servicers.
Working with our partner, CSBS, helps navigate these waters, but we still have some complex maneuvering left to do.
So, now that we’ve mapped out our river, what must we do to successfully navigate its waters?
We need the right teammates in the raft – regulators, legislators, consumers advocates, industry leaders, everyone working together to make servicing an attractive business model again!
We need a strong servicing market that works for all market stakeholders and participants.
Let’s take advantage of President Trump’s goal of helping the business community, and address capital standards and servicing standards.
Let’s begin by scrapping the punitive Basel III treatment of mortgage servicing assets, an asset most overseas banks don’t even have!
Let’s let performance, capacity, and customer service be the primary drivers of who gets market share in servicing, not excessively high capital standards on one segment of the industry.
Bank regulators should re-evaluate the risks associated with owning MSR assets and change the risk-weighting back to 100 percent, increase the 10 percent cap back to its historic level, and exclude MSRs from the Basel III mandated 15 percent cap altogether.
Our industry needs innovation. We want and need to provide greater, more efficient and technologically advanced services to borrowers.
For example, let’s provide the borrower with more “self-serve” payment options. Electronic statements afford servicers the opportunity to connect with borrowers regularly and more efficiently.
So, let’s reduce regulatory, litigation and cost burdens to free up expenditures and allow us to innovate our services.
Now is also a great time to look at the current environment at Ginnie Mae. Ginnie Mae has a more diverse issuer base which is good for overall risk management, and ensuring that veterans, first-time homebuyers and low to moderate income Americans can continue to get home loans.
However, the return of independents means that Ginnie Mae has to evaluate different business models that may require more resources and tools for counterparty risk management. MBA will work with Ginnie Mae to help develop tools they can use to assist with the evaluation of their counterparties.
Remember where we started – it’s a great time to be in the servicing business.
Right now, we have an excellent opportunity to chart our course and plan for our future, which, we know, by virtue of the economic business cycle, will present us with treacherous waters again.
But this time, we will be much better prepared.
The final teammate is a great leader.
From the “aft” of the raft, the team leader has the broadest perspective of the landscape ahead. Leadership’s seat isn’t always up front. But, MBA has a seat at the table in Washington, from which we can see with a broader view those opportunities to better represent the case for our members.
So, how do we conquer this Servicing River?
By recognizing we’re all in this boat together — working to establish uniform, efficient and common sense rules, methods and activities that benefit consumers, our industry and our economy.
MBA is ONE VOICE.
Our strength in achieving success through narrow passageways and turbulent waters is our unity. We form a powerful force that ensures a safe, sustainable real estate finance system, and a competitive servicing market. As an MBA member you have the most influential voice for real estate finance.
MBA has ONE VISION.
When seeking out our team, we want members that bring different, but complementary strengths. Each of us brings a different perspective to this business.
With a strong and unified partnership, we work toward our shared vision of a diverse and a competitive market for all industry participants.
MBA is ONE RESOURCE.
When administration officials and new Congressional leadership are looking for institutional knowledge, a better understanding of the market, or the view from the industry, they call MBA. MBA impacts legislation and regulation so that we are able to operate at our full potential.
The power to stay united in the coming year is in our collective hands. Only by coming together can we achieve the best results for our industry.
Considering the high-risk nature of our business from a regulatory and enforcement stand point, I realize it may be a little counterintuitive to say that now is a great time to be in the servicing business.
But I hope I’ve given you a little different perspective.
When white water rafting, the team usually seeks out which class level river to navigate – class one being the easiest, most enjoyable way to glide down the river; a class five being the most risky and dangerous.
From a mortgage servicing perspective in today’s environment, sometimes we don’t have the luxury of choosing our river. But we basically know to expect the unexpected.
We have the people, the leadership and the knowledge to navigate anything that comes our way.
We have the opportunity here and now to change course with a new administration and new Congress.
And maybe we can change our course just enough to plan for a better, easier ride ahead.
Rob Van Raaphorst
(202) 557- 2799