Mellin: Third-party mortgage servicing proposal unnecessary, needs clarity

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In a recent letter to Linda Lacewell, the superintendent of the state Department of Financial Services, New York Credit Union Association President/CEO William J. Mellin expressed concerns with proposed amendments to Part 419 of Title 3 for New York state’s banking regulations.

The proposed amendments would, among other things, impose explicit requirements on mortgage servicers with regard to their oversight of third-party vendors.

In his letter, Mellin suggested that the scope of the DFS proposal is not adequately defined. “While the plain text of the regulations clearly limit its application to parties processing or servicing loans on behalf of a third-party, discussions with officials at the Department lead some credit unions to conclude that any entity accepting payments is a servicer, even when the credit union is simply collecting mortgage payments from its own borrowers,” he wrote.

Mellin also wrote that the proposed rulemaking does not incorporate sufficient flexibility for impacted institutions, explaining that institutions impacted by this proposal should be able to adjust the amount of due diligence they conduct based on their size and sophistication, as well as the services being provided by the third-party. The proposed rulemaking does not contemplate the ability to make these adjustments.

He also questioned how the proposal could impact a credit union’s business relationship with out-of-state vendors. “Most servicers are not big enough to demand their out-of-state vendors comply with specific contract language,” Mellin wrote. “Credit union servicers and other financial institutions need the ability to balance vendor oversight against the harm caused by having to find and work exclusively with vendors willing to comply with New York State regulation.”

He concluded: “While credit unions are committed to ensuring appropriate oversight of vendors, additional regulations in this area are not necessary.”

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