Subordinated Debt
| Published date | 23 December 2021 |
| Citation | 86 FR 72807 |
| Record Number | 2021-27643 |
| Section | Rules and Regulations |
| Court | National Credit Union Administration |
72807
Federal Register / Vol. 86, No. 244 / Thursday, December 23, 2021 / Rules and Regulations
1
86 FR 11060 (Feb. 23, 2021). Capitalized terms
in this preamble are defined in the December 2020
Subordinated Debt final rule.
2
Id. at 11074.
3
Id.
4
Id. at 11083.
5
Consolidated Appropriations Act, 2021, Public
Law 116–260 (H.R. 133), Dec. 27, 2020.
6
Id. codified at 12 U.S.C. 4703a et seq.
7
12 U.S.C. 4703a(a)(2).
8
86 FR 53567 (Sept. 28, 2021).
NATIONAL CREDIT UNION
ADMINISTRATION
12 CFR Parts 702 and 741
RIN 3133–AE98
Subordinated Debt
AGENCY
: National Credit Union
Administration (NCUA).
ACTION
: Final rule.
SUMMARY
: The NCUA Board (Board) is
amending the Subordinated Debt rule,
which the Board finalized in December
2020 with an effective date of January 1,
2022. This final rule amends the
definition of ‘‘Grandfathered Secondary
Capital’’ to include any secondary
capital issued to the United States
Government or one of its subdivisions
(U.S. Government), under a secondary
capital application approved before
January 1, 2022, irrespective of the date
of issuance. This amendment will
benefit eligible low-income credit
unions (LICUs) that are either
participating in the U.S. Department of
the Treasury’s (Treasury) Emergency
Capital Investment Program (ECIP) or
other programs administered by the U.S.
Government that can be used to fund
secondary capital, if they do not receive
the funds for such programs by
December 31, 2021. The Board is also
amending the Subordinated Debt rule by
extending the expiration of regulatory
capital treatment for the aforementioned
secondary capital issuances to the later
of 20 years from the date of issuance or
January 1, 2042.
DATES
: The final rule is effective January
1, 2022.
FOR FURTHER INFORMATION CONTACT
:
Justin Anderson, Senior Staff Attorney,
(703) 518–6556, Office of General
Counsel, National Credit Union
Administration, 1775 Duke Street,
Alexandria, VA 22314.
SUPPLEMENTARY INFORMATION
:
Table of Contents
I. Background
II. Summary of Comments Received by the
Board
III. Final Rule
IV. Administrative Law Matters
A. Administrative Procedure Act
B. SBREFA
C. Paperwork Reduction Act
D. Regulatory Flexibility Act Analysis
E. Executive Order 13132
F. Assessment of Federal Regulations and
Policies on Families
I. Background
A. Subordinated Debt Rule
At its December 2020 meeting, the
Board issued a final Subordinated Debt
rule permitting LICUs, Complex Credit
Unions, and New Credit Unions to issue
Subordinated Debt for purposes of
Regulatory Capital treatment.
1
Relevant
to this final rule, the Subordinated Debt
rule grandfathered secondary capital
issued before January 1, 2022, and
allowed such secondary capital to
receive regulatory capital treatment
until January 1, 2042 (20 years from the
effective date of the Subordinated Debt
rule).
2
The grandfathering provision of
the Subordinated Debt rule allows
LICUs with grandfathered secondary
capital to continue to be subject to the
requirements of 12 CFR 701.34(b), (c),
and (d) (recodified in the December
2020 final Subordinated Debt rule as 12
CFR 702.414), rather than the
requirements of the Subordinated Debt
rule.
3
The Subordinated Debt rule also
includes a provision stating that any
issuances of secondary capital not
completed by January 1, 2022, are, as of
January 1, 2022, subject to the
requirements applicable to
Subordinated Debt in the Subordinated
Debt rule.
4
This provision would nullify
any approved secondary capital
application if the associated issuance is
not completed before January 1, 2022.
Any LICU in this situation would be
required to reapply under the
Subordinated Debt rule if such LICU
sought to proceed with its planned
secondary capital issuance.
B. Emergency Capital Investment
Program
Subsequent to the issuance of the
Subordinated Debt rule, Congress
passed the Consolidated Appropriations
Act, 2021 (CAA).
5
The CAA, among
other things, created the ECIP. Under
the ECIP, Congress appropriated funds
and directed Treasury to make
investments in ‘‘eligible institutions’’ to
support their efforts to ‘‘provide loans,
grants, and forbearance for small
businesses, minority-owned businesses,
and consumers, especially in low-
income and underserved
communities.’’
6
The definition of
‘‘eligible institutions’’ includes federally
insured credit unions that are minority
depository institutions or community
development financial institutions,
provided such credit unions are not in
troubled condition or subject to any
formal enforcement actions related to
unsafe or unsound lending practices.
7
Under the terms developed by
Treasury, investments in eligible credit
unions will be in the form of
subordinated debt. Treasury also
aligned its investments in LICUs with
the Federal Credit Union Act and the
NCUA’s regulations to allow eligible
LICUs to apply to the NCUA for
secondary capital treatment for these
investments.
Treasury opened the ECIP application
process on March 4, 2021, with an
application deadline of May 7, 2021.
Treasury subsequently extended this
deadline multiple times, with the most
recent deadline being September 1,
2021.
C. Summary of the Proposed Rule
At its September 2021 meeting, the
Board issued a notice of proposed
rulemaking to amend the Subordinated
Debt rule to address a specific situation
with funding of approved secondary
capital applications.
8
As discussed in subsection A of this
section, if the ECIP investments, or
investments from any other programs
administered by the U.S. Government
that can fund secondary capital, are not
funded by the end of 2021, those
approved LICUs would be required to
reapply under the Subordinated Debt
rule to complete an issuance. As this
scenario would impose an unnecessary
burden on these LICUs, the Board
proposed to amend the Subordinated
Debt rule to permit funding of
secondary capital approved under the
current secondary capital rule, beyond
2021, without the need to reapply under
the Subordinated Debt rule. Regardless
of the issuance date of the secondary
capital, such secondary capital would,
for the purposes of the Subordinated
Debt rule, be considered Grandfathered
Secondary Capital, and remain subject
to 12 CFR 701.34(b), (c) and (d) of the
NCUA’s regulations (recodified in the
December 2020 final Subordinated Debt
rule as 12 CFR 702.414). The Board
notes that the proposed changes were
narrowly tailored to provide an
exception to the issuance cutoff date, if
the secondary capital issuance is:
1. To the U.S. Government; and
2. Being conducted under a secondary
capital application that was approved
before January 1, 2022, under either
§ 701.34 of the NCUA’s regulations, for
federal credit unions, or § 741.203 of the
NCUA’s regulations, for federally
insured, state-chartered credit unions.
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Federal Register / Vol. 86, No. 244 / Thursday, December 23, 2021 / Rules and Regulations
9
Id. at 53568.
10
Id.
11
5 U.S.C. 553(d).
12
Id. 553(d)(1).
13
Id. 801–804.
14
Id. 551.
15
Id. 601 et seq.
16
NCUA Interpretive Ruling and Policy
Statement 15–1. 80 FR 57512 (Sept. 24, 2015).
Consistent with the final
Subordinated Debt rule, any LICU not
meeting the above criteria will remain
subject to the requirement to complete
any issuance by the end of 2021 or such
issuance will be subject to the
requirements of the final Subordinated
Debt rule.
The Board also proposed to amend
the starting point for Grandfathered
Secondary Capital to retain its status as
Regulatory Capital. Currently, the
Subordinated Debt rule states that all
Grandfathered Secondary Capital will
be treated as regulatory capital until
January 1, 2042 (20 years from the
effective date of the final Subordinated
Debt rule). As the proposed rule would
allow limited issuances of
Grandfathered Secondary Capital
beyond January 1, 2022, the Board
proposed to allow such secondary
capital to count as regulatory capital for
up to 20 years from the date of issuance.
The Board noted that this proposed
amendment would provide equitable
treatment for all issuances of
Grandfathered Secondary Capital.
II. Summary of Comments
A. The Public Comments, Generally
The NCUA received 15 comments
following publication of the proposed
rule. All of the commenters that
addressed the proposed rule were in
support of the proposed amendments.
There were no commenters that
opposed the proposed amendments.
B. Comments Outside the Scope of the
Proposed Rule
All of the commenters recommended
additional changes to the Subordinated
Debt rule. In the proposed rule,
however, the Board stated the proposed
changes contained therein were
narrowly tailored to address a specific
situation with funding of approved
secondary capital applications.
9
Therefore, the Board noted it was not
considering any other changes to the
final Subordinated Debt rule at that time
and comments outside the scope of the
proposed rule would be treated as such
for the purpose of any final rule the
Board may issue.
10
While the comments recommending
changes to the Subordinated Debt rule
are outside the scope of this rulemaking,
the Board will retain these comments
for use in any future proposals to amend
the Subordinated Debt rule.
III. Final Rule
As no commenters opposed the
proposed rule, the Board is finalizing
the proposed amendments without
change.
V. Administrative Law Matters
A. Administrative Procedure Act
The Administrative Procedure Act
(APA) generally requires that a final rule
be published in the Federal Register no
less than 30 days before its effective
date except for (1) substantive rules
which grant or recognize an exemption
or relieve a restriction; (2) interpretative
rules and statements of policy; or (3) as
otherwise provided by the agency for
good cause.
11
Because the final rule
relieves a restriction, the final rule is
exempt from the APA’s delayed
effective date requirement.
12
Therefore,
this final rule will become effective on
January 1, 2022.
B. Small Business Regulatory
Enforcement Fairness Act
The Small Business Regulatory
Enforcement Fairness Act of 1996 (Pub.
L. 104–121) (SBREFA) generally
provides for congressional review of
agency rules.
13
A reporting requirement
is triggered in instances where the
NCUA issues a final rule as defined by
Section 551 of the APA.
14
The NCUA
does not believe this rule is a ‘‘major
rule’’ within the meaning of the relevant
sections of SBREFA. As required by
SBREFA, the NCUA will submit this
final rule to the Office of Management
and Budget for it to determine if the
final rule is a ‘‘major rule’’ for purposes
of SBREFA. The NCUA also will file all
appropriate Congressional reports.
C. Paperwork Reduction Act
The Paperwork Reduction Act of 1995
(44 U.S.C. 3501 et seq.) requires that the
Office of Management and Budget
approve all collections of information
by a Federal agency from the public
before they can be implemented.
Respondents are not required to respond
to any collection of information unless
it displays a valid Office of Management
and Budget control number. This final
rule extends the time for certain
issuances of secondary capital and the
corresponding Regulatory Capital
treatment of such issuances. As such,
this rule does not require any
information collection as defined by the
Paperwork Reduction Act of 1995.
D. Regulatory Flexibility Act
The Regulatory Flexibility Act
(RFA)
15
generally requires an agency to
consider whether the rule it proposes
will have a significant economic impact
on a substantial number of small
entities. For purposes of the RFA, the
Board considers credit unions with
assets less than $100 million to be small
entities.
16
The Board determined that the
proposed rule would affect a small
number of LICUs with approved
secondary capital applications for
issuances to the U.S. Government or its
subdivisions. The rule is focused on
relieving administrative application
requirements that would otherwise
apply. As such, the Board found that an
RFA analysis was not required for the
proposed rule. Accordingly, the Board
certifies that the final rule does not have
a significant economic impact on a
substantial number of small credit
unions.
E. Executive Order 13132
Executive Order 13132 encourages
independent regulatory agencies to
consider the impact of their actions on
state and local interests. The NCUA, an
independent regulatory agency as
defined in 44 U.S.C. 3502(5), voluntarily
complies with the executive order to
adhere to fundamental federalism
principles.
The rule relieves administrative
application requirements that would
otherwise apply and does not alter
substantive requirements that apply to
state-chartered credit unions generally.
The Board has therefore determined that
this rule does not constitute a policy
that has federalism implications for
purposes of the executive order.
F. Assessment of Federal Regulations
and Policies on Families
The NCUA has determined that this
rule will not affect family well-being
within the meaning of § 654 of the
Treasury and General Government
Appropriations Act, 1999, Public Law
105–277, 112 Stat. 2681 (1998).
List of Subjects
12 CFR Part 702
Credit unions, Reporting and
recordkeeping requirements.
12 CFR Part 741
Bank deposit insurance, Credit
unions, Reporting and recordkeeping
requirements.
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Federal Register / Vol. 86, No. 244 / Thursday, December 23, 2021 / Rules and Regulations
By the NCUA Board on December 16, 2021.
Melane Conyers-Ausbrooks,
Secretary of the Board.
For the reasons discussed in the
preamble, the NCUA is amending 12
CFR parts 702 and 741, as amended by
86 FR 11060 (Feb. 23, 2021) and
effective on January 1, 2022, as follows:
PART 702—CAPITAL ADEQUACY
■1. The authority citation for part 702
continues to read as follows:
Authority: 12 U.S.C. 1766(a), 1790d.
■2. In § 702.2 revise the definitions of
‘‘Grandfathered Secondary Capital’’ and
‘‘Regulatory Capital’’ to read as follows:
§ 702.2 Definitions.
* * * * *
Grandfathered Secondary Capital
means any secondary capital issued
under § 701.34 of this chapter, before
January 1, 2022 or, in the case of a
federally insured, state-chartered credit
union, with § 741.204(c) of this chapter,
before January 1, 2022. (12 CFR 701.34
was recodified as § 702.414 as of
January 1, 2022). This term also
includes issuances of secondary capital
to the U.S. Government or any of its
subdivisions, under applications
approved before January 1, 2022,
pursuant to § 701.34 or §741.204(c) of
this chapter, irrespective of the date of
issuance.
* * * * *
Regulatory Capital means:
(1) With respect to an Issuing Credit
Union that is a LICU and not a complex
credit union, the aggregate outstanding
principal amount of Subordinated Debt
and, until the later of 20 years from the
date of issuance or January 1, 2042,
Grandfathered Secondary Capital that is
included in the credit union’s net worth
ratio;
(2) With respect to an Issuing Credit
Union that is a complex credit union
and not a LICU, the aggregate
outstanding principal amount of
Subordinated Debt that is included in
the credit union’s RBC Ratio;
(3) With respect to an Issuing Credit
Union that is both a LICU and a
Complex Credit Union, the aggregate
outstanding principal amount of
Subordinated Debt and, until the later of
20 years from the date of issuance or
January June 1, 2042, Grandfathered
Secondary Capital that is included in its
net worth ratio and in its RBC Ratio; and
(4) With respect to a new credit
union, the aggregate outstanding
principal amount of Subordinated Debt
and, until the later of 20 years from the
date of issuance or January 1, 2042,
Grandfathered Secondary Capital that is
considered pursuant to § 702.207.
* * * * *
■3. Revise § 702.401 to read as follows:
§ 702.401 Purpose and scope.
(a) Subordinated Debt. This subpart
sets forth the requirements applicable to
all Subordinated Debt issued by a
federally insured, natural person credit
union, including the NCUA’s review
and approval of that credit union’s
application to issue or prepay
Subordinated Debt. This subpart shall
apply to a federally insured, state-
chartered credit union only to the extent
that such federally insured, state-
chartered credit union is permitted by
applicable state law to issue debt
instruments of the type described in this
subpart. To the extent that such state
law is more restrictive than this subpart
with respect to the issuance of such debt
instruments, that state law shall apply.
Except as provided in the next sentence,
any secondary capital, as that term is
used in the Federal Credit Union Act,
issued after January 1, 2022, is
Subordinated Debt and subject to the
requirements of this subpart. Issuances
of secondary capital, as that term is used
in the Federal Credit Union Act, to the
U.S. Government or any of its
subdivisions, under applications
approved before January 1, 2022,
pursuant to § 701.34 or §741.204(c) of
this chapter, are not subject to the
requirements applicable to
Subordinated Debt, discussed elsewhere
in this subpart, irrespective of the date
of issuance.
(b) Grandfathered Secondary Capital.
Any secondary capital defined as
‘‘Grandfathered Secondary Capital,’’
under § 702.402, is governed by
§ 702.414. Grandfathered Secondary
Capital will no longer be treated as
Regulatory Capital as of the later of 20
years from the date of issuance or
January 1, 2042.
■4. In § 702.402 revise the definition
for ‘‘Grandfathered Secondary Capital’’
to read as follows:
§ 702.402 Definitions.
* * * * *
Grandfathered Secondary Capital
means any secondary capital issued
under § 701.34 of this chapter before
January 1, 2022, or, in the case of a
federally insured, state-chartered credit
union, with § 741.204(c) of this chapter,
before January 1, 2022. (12 CFR 701.34
was recodified as § 702.414 as of
January 1, 2022). This term also
includes issuances of secondary capital
to the U.S. Government or any of its
subdivisions, under applications
approved before January 1, 2022,
pursuant to § 701.34 or §741.204(c) of
this chapter, irrespective of the date of
issuance.
* * * * *
■5. In § 702.414 revise the introductory
paragraph and paragraph (a)(2) to read
as follows:
§ 702.414 Regulations governing
Grandfathered Secondary Capital.
This section recodifies the
requirements from 12 CFR 701.34(b), (c),
and (d) that were in effect as of
December 31, 2021, with minor
modifications. The terminology used in
this section is specific to this section.
Except as provided in the next sentence,
all secondary capital issued under
§ 701.34 of this chapter before January 1,
2022, or, in the case of a federally
insured, state-chartered credit union,
§ 741.204(c) of this chapter, that is
referred to elsewhere in this subpart as
‘‘Grandfathered Secondary Capital,’’ is
subject to the requirements set forth in
this section. Issuances of secondary
capital to the U.S. Government or any of
its subdivisions, under applications
approved before January 1, 2022,
pursuant to § 701.34 or §741.204(c) of
this chapter, are also considered
‘‘Grandfathered Secondary Capital’’
irrespective of the date of issuance.
* * * * *
(a) * * *
(1) * * *
(2) Issuances not completed before
January 1, 2022. Except as provided in
the next sentence, any issuances of
secondary capital not completed by
January 1, 2022, are, as of January 1,
2022, subject to the requirements
applicable to Subordinated Debt
discussed elsewhere in this subpart.
Issuances of secondary capital to the
U.S. Government or any of its
subdivisions, under applications
approved before January 1, 2022,
pursuant to §§ 701.34 or 741.204(c) of
this chapter, are not subject to the
requirements applicable to
Subordinated Debt, discussed elsewhere
in this subpart, irrespective of the date
of issuance.
* * * * *
PART 741—REQUIREMENTS FOR
INSURANCE
■6. The authority citation for part 741
continues to read as follows:
Authority: 12 U.S.C. 1757, 1766(a), 1781–
1790, and 1790d; 31 U.S.C. 3717.
■7. Amend § 741.204 by revising
paragraph (c) to read as follows:
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1
12 U.S.C. 1757(7), (8), (14), (15).
2
62 FR 32989 (June 18, 1997); 66 FR 54168,
54169 (Oct. 26, 2001); 67 FR 78996, 78997 (Dec. 27,
2002); 12 CFR 703.16(a).
3
85 FR 86867 (Dec. 31, 2020).
4
12 U.S.C. 1757(14).
5
The phrase ‘‘empowered to grant’’ refers to an
FCU’s authority to make the type of loans permitted
by the Act, NCUA regulations, FCU Bylaws, and an
FCU’s own internal policies. See NCUA OGC Op.
04–0713 (Oct. 25, 2004) available at https://
www.ncua.gov/files/legal-opinions/OL2004-
0713.pdf, 76 FR 81421, 81425 (December 28, 2011).
6
12 CFR 703.16.
7
12 CFR 703.14.
8
12 CFR 703.2.
9
For example, see 12 CFR 1024.17; 12 CFR part
1024, subpart C; 12 CFR 1026.20, .36, .40–.41.
10
See Financial Accounting Standards Board
(FASB) Accounting Standards Codification (ASC)
860—Transfer and Servicing of Financial Assets.
§ 741.204 Maximum public unit and
nonmember accounts, and low-income
designation.
* * * * *
(c) Follow the requirements of
§ 702.414 of this chapter for any
Grandfathered Secondary Capital (as
defined in part 702 of this chapter).
[FR Doc. 2021–27643 Filed 12–22–21; 8:45 am]
BILLING CODE 7535–01–P
NATIONAL CREDIT UNION
ADMINISTRATION
12 CFR Parts 703 and 721
RIN 3133–AF26
Mortgage Servicing Assets
AGENCY
: National Credit Union
Administration (NCUA).
ACTION
: Final rule.
SUMMARY
: The NCUA Board (Board) is
issuing a final rule to permit federal
credit unions (FCUs) to purchase
mortgage servicing assets (MSAs),
referred to as mortgage servicing rights
in the proposed rule, from other
federally insured credit unions subject
to certain requirements. Under the final
rule, FCUs with a CAMEL or CAMELS
composite rating of 1 or 2 and a CAMEL
or CAMELS Management component
rating of 1 or 2, may purchase the
mortgage servicing rights of loans that
the FCU is otherwise empowered to
grant, provided these purchases are
made in accordance with the FCU’s
policies and procedures that address the
risk of these investments and servicing
practices. The Federal Credit Union Act
(the Act) permits FCUs to purchase
mortgage servicing assets under their
express authority to purchase assets
from other credit unions.
DATES
: The final rule is effective April
1, 2022.
FOR FURTHER INFORMATION CONTACT
:
Thomas Fay, Director, Capital Markets;
John G. Nilles, Senior Capital Markets
Specialist, Office of Examination &
Insurance, or Ian Marenna, Associate
General Counsel; Chrisanthy Loizos,
Senior Trial Attorney, Office of General
Counsel, or Ernestine Ward, Consumer
Compliance Policy and Outreach
Program Officer, Office of Consumer
Financial Protection, at 1775 Duke
Street, Alexandria, VA 22314 or
telephone: (703) 518–6300, (703) 518–
6540, or (703) 518–6524.
SUPPLEMENTARY INFORMATION
:
I. Introduction
II. Final Rule
III. Legal Authority
IV. Discussion of Public Comments Received
on the Proposed Rule
V. Regulatory Procedures
I. Introduction
A. Background
While the Act provides specific,
statutory investment powers for FCUs,
1
the Board has adopted regulatory
prohibitions against certain investments
and investment activities on the basis of
safety and soundness concerns,
including the purchase of mortgage
servicing rights (MSRs) as an
investment.
2
In December 2020, by a
vote of 2–1, the Board approved a notice
of proposed rulemaking (NPR)
3
to
amend the agency’s Investment and
Deposit Activities Rule (Investment
Rule), 12 CFR part 703, to explicitly
permit FCUs to purchase MSRs from
other federally insured credit unions
(FICUs) based on express statutory
authority that permits an FCU ‘‘to sell
all or a part of its assets to another credit
union [and] to purchase all or part of the
assets of another credit union. ..subject
to regulations of the Board.’’
4
The
proposed regulatory text provided the
following requirements for this
investment authority:
(1) The underlying mortgage loans of the
MSRs are loans the FCU is empowered to
grant;
5
(2) The FCU purchases the MSRs within
the limitations of the FCU’s board of
directors’ written purchase policies; and
(3) The FCU’s board of directors or
investment committee approves the purchase
in advance.
The NPR also included several
questions as to whether the rule should
place additional conditions on the
authority, such as capital requirements,
concentration limits, or other measures
to address consumer financial
protection, compliance risk and
liquidity risk.
Generally, when a lender originates a
mortgage loan, the lender may retain the
loan and the servicing function for the
loan in its portfolio, sell the loan along
with the MSRs to another party, or
separate the MSRs from its mortgage
loan and transfer either the loan or the
MSRs to another party. The NPR
focused on the purchase of MSRs as
assets that are distinct from their
underlying mortgage loans. The Board
proposed to permit FCUs to purchase
MSRs by removing MSRs from the list
of prohibited investments
6
in the
Investment Rule and adding the
purchase of MSRs from other FICUs to
the rule’s list of permissible investments
for FCUs.
7
Under the current Investment Rule,
MSRs are defined as ‘‘a contractual
obligation to perform mortgage servicing
and the right to receive compensation
for performing those services. Servicing
is the administration of a mortgage loan,
including collecting monthly payments
and fees, providing recordkeeping and
escrow functions, and, if necessary,
curing defaults and foreclosing.’’
8
Mortgage loan servicers, therefore, are
intermediaries between borrowers and
owners of the mortgage loans; their
servicing functions are subject to a
servicing agreement and consumer
protection laws, as applicable.
9
MSRs,
or mortgage servicing assets, a term used
interchangeably with MSRs, are
recorded in accordance with Generally
Accepted Accounting Principles
(GAAP).
10
Mortgage servicing can carry various
risks. Servicers are exposed to liquidity
risk if servicing agreements require the
servicer to remit mortgage loan
payments to the investors of sold loans
even when borrowers fail to make their
monthly payments. There are also
operational risks related to mortgage
servicing due to a myriad of statutes and
regulations that protect consumers,
which can expose FCUs to reputational,
legal, and compliance risk. The
compliance and reputation risk of a
mortgage servicer can be considerable
due to the high touch nature of
interactions with consumers and the
attendant legal requirements imposed
on mortgage servicers. For example,
depending on the particular servicer
and its activities, servicers must comply
with a variety of requirements,
including the Real Estate Settlement
Procedures Act (RESPA) and its
implementing regulation, Regulation X;
the Truth in Lending Act (TILA) and its
implementing regulation, Regulation Z;
as well as amendments to Regulations X
and Z under the Mortgage Servicing
Rules promulgated by the Consumer
Financial Protection Bureau, which
implement provisions of the Dodd-
Frank Wall Street Reform and Consumer
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