WASHINGTON — Community bankers are pressing for a carve-out as lawmakers weigh whether to create national mortgage servicing standards.
Jack Hopkins, president of CorTrust Bank in Sious Falls, S.D., told the Senate Banking Committee, that his bank should not be penalized for the multitude of problems uncovered by regulators at the largest mortgage servicers.
"Any national standards developed by Congress or the regulators must exempt community banks. I urge you not to tamper with our success," said Hopkins, who testified on behalf of the Independent Community Bankers of America.
The Senate Banking Committee is considering three separate bills that would establish national servicing standards.
Such rules could require servicers to establish a single point of contact with borrowers, prohibit servicers from proceeding with a foreclosure at the same time they are working with the homeowner on a loan modification, and seek to address conflicts of interest between loan servicers and the investors who own the loans.
Panel Democrats are hoping to combine the three bills into a single piece of legislation and pass it soon. If it clears the Senate, it is likely to face an uphill battle in the Republican-controlled House.
Still, the legislative push is just one of several efforts to establish stricter rules of the road for servicers.
Fannie Mae and Freddie Mac have their own guidelines for servicers of the mortgages they own or guarantee. Federal regulators, including the Consumer Financial Protection Bureau, which opened its doors late last month, have also been collaborating on the establishment of national servicing standards.
Most of the concerns raised by critics of the mortgage servicing industry do not apply to small banks that originate mortgages and hold them in portfolio.
Hopkins, the South Dakota banker, noted Tuesday that his bank has an average delinquency rate of 1.7% — or about one-third of the national average — on a portfolio of about 5,000 loans.
He said that smaller servicers have better control over mortgage documents than their larger counterparts, and they also have a better understanding of individual circumstances, such as the loss of a job due to the closing of a local employer.
"Community banks are successfully servicing their portfolios and don't have the widespread servicing problems reported in the press," Hopkins said.
Hopkins expressed concern that new servicing requirements could require his bank to establish a call center, which he said would be a prohibitive and unnecessary expense, among other burdensome new rules.
"We must preserve the role of community banks in mortgage servicing or you will see further consolidation, which will only harm borrowers, especially those in rural and underserved housing markets," Hopkins said.
Banking Committee Chairman Tim Johnson, who called Tuesday's hearing and represents South Dakota, appeared sympathetic to the concerns raised by small banks.
"Small servicers … haven't been caught up in the problem that large servicers have," he said.
Peter Swire, a former Obama administration official who is now a law professor at Ohio State University, suggested that the servicing standards might be designed to exempt community banks that service their own loans.
"One of the basic distinctions for mortgage servicing rights is whether the bank retains the servicing, keeps them there in the community bank, or whether they get sold to somebody else," he said.
