What disqualifies you from being a "Small Servicer"?
So the Federal servicing regulations were made much more difficult in 2014. The good news is that many lenders qualified for a regulatory exemption as "Small Servicers." Certainly every lender wants to take advantage of this exemption if possible.
But if you're servicing loans for 3rd parties, does that automatically disqualify you from "small servicer" status?
Three of the bigger issues are discussed below. First note the general rule that to qualify for this exemption, an institution must (1) service fewer than 5,000 loans, and (2) cannot service even a single loan for a third-party (unless you either currently own the loan or originated it). When I mean "loan," I'm referring to closed-end consumer loans secured by a dwelling. Check out 12 CFR 1026.41(e)(4) for the exact rule.
1)Habitat-for-Humanity Loans
Some organizations voluntarily service loans for community organizations as charity, and don't accept any reimbursement or fee. Voluntarily serviced loans on behalf of a non-affiliated third-party do not count towards the small servicer determination.
It may seem obvious, but loans serviced voluntarily for free on behalf of third- party organizations (as long as they aren't an affiliate) won't hurt you with this test. They don't count towards the 5,000 loan test, and are exempt from the requirement of having to originate or own the servicing rights of the loan.
2)Fannie/Freddie/FHLB Servicing Retained
Servicing loans for an investor is NOT a problem here. Loans sold to an investor don't count because the servicer must either currently own the loan OR must have been the originator. So while those loans still count towards the 5,000 limit, they do not count as "third-party loans" because they were originally originated by you.
3)Loans for Another Institution
These ARE a problem. Even if it's a favor for another institution, if you service even a single loan for another organization that you didn't either originate or currently own (except voluntarily for no fee or compensation as in exception #1 above), then this one loan will destroy your "small servicer" status. Simple answer? Don't agree to service a loan for another institution unless you can buy the loan along with the servicing rights.
**Special Note**
This part of the Servicing Rule was recently amended by the CFPB. So if you printed these out last year (or wrote your procedures last year), it's worth a quick look to make sure they're okay.
In Other News
Rattlesnake Island sounds like an edgy reboot of Gilligan's Island ... the problem being it would only be 2 episodes instead of 2 hundred episodes.
National MBA in Boston ... October 23-26 ... Hynes Convention Center.
Look out on October 1st for my colleague Paul Bates' brand new newsletter, to be delivered to certain clients and contacts on a monthly basis via e-mail. Paul will try to share tips, best practices, and war stories on issues related to banking systems and technology as a courtesy to select friends and other contacts (everyone getting this e-mail will get Paul's, at least to start). Paul, of course, is jealous of the widespread fame and accolades that have rained down upon this compliance newsletter. Now we'll go head-to-head for pageviews (pssh, good luck Bates). This weekend's premiere newsletter is entitled "The Benefits of a Robust Reporting Library."
Know anyone who focuses on the negative (Debbie Downer SNL)? What is it about complaining that people enjoy so much? New parents complain about how hard parenting is ... late nights, screaming, etc. Are you flippin crazy? Talk about taking something that should be the highlight of your life and trying to cast it in a negative light.
According to one HBR article- available here https://hbr.org/2012/01/positive-intelligence. - many of these habits can be trained, with training your brain to be positive similar to training your muscles at the gym. The article said that even engaging in one brief positive exercise every day, such as jotting down three things you're grateful for, can have a lasting impact. When the author conducted an experiment on an unhappy group of people (KPMG tax managers in NY in December 2008, the worst tax season in decades), this brief exercise followed for 3 weeks had a significant impact even 4 months later. The author notes "Happiness had become habitual."
Random poll for today - My colleague Bryan grew up in New Hampshire, but claims to have never seen a moose. (Or maybe I should say he claims to have grown up in NH and hasn't seen a moose). How many people believe Bryan? How many think that something is fishy with this story?
"Research shows that when people work with a positive mind-set, performance on nearly every level-productivity, creativity, engagement- improves. Yet happiness is perhaps the most misunderstood driver of performance. For one, most people believe that success precedes happiness. "Once I get a promotion, I'll be happy," they think. Or, "Once I hit my sales target, I'll feel great." But because success is a moving target-as soon as you hit your target, you raise it again-the happiness that results from success is fleeting."
~ Shawn Anchor
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