Could This Mean the End for Small Loan Servicers? Don’t Panic Just Yet!

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There’s no doubt about it: Smaller loan servicers are going to be challenged by the Consumer Financial Protection Bureau’s (CRPB) new rules.  This is particularly true concerning the costs associated with ensuring that all regulations are closely followed and monitored in-house.  In such, many small firms are now looking for strategic alliances with third-party vendors whom they can trust to comply with all of the CFPB’s new rules. 

In particular, residential mortgage servicers will be scrambling to implement new rules related to borrower notifications and interaction, as well as those focusing on key procedures and infrastructure improvements.  While many of the larger servicers have already implemented these changes in expectation of 2014’s regulatory changes, the smaller servicers, on average, are not nearly as well prepared.  This is primarily due to the costs associated with implementing these changes. 

Increased attention to detail in record keeping will require higher costs associated with paperwork and compliance issues for the smaller firms.  While many of the larger banks and mortgage servicers have been selling their servicing rights on loans that underperform to keep expenses down, smaller servicers might not have this option. 

Servicing mortgages is a business that is competitive, just like any other.  Now, with the new CFPB regulatory requirements, small servicers will be feeling the heat of balancing their compliance with turning a profit.  The question that is still on everyone’s mind is this:  will this situation lead to further consolidation in the loan servicing industry?  The answer to that question remains to be seen, although many industry analysts are suggesting that the increased cost of regulatory compliance is likely to cause this exact scenario. 

This doesn’t mean that small servicers should throw in the towel just yet.  It is possible to implement all the changes required by the CFPB and still maintain a profitable business if you’re a small firm servicing loans.  New acquisitions can help manage overall profitability.