The new rules lean on a federal standard - and reverse-only servicers get a pass
Rhode Island just made it law: its biggest nonbank mortgage servicers must now hold more capital, seat real boards, and prove they can weather a shock.
The Governor signed H 7867 on Tuesday, putting capital, liquidity, and corporate-governance standards for the firms it calls "covered mortgage servicers" directly into state law. Representative Joseph J. Solomon sponsored the measure and introduced it on February 27. It passed the House on May 26, cleared the Senate in concurrence on June 9, and went to the Governor's desk on June 18. Because the act takes effect upon passage, the requirements are already in force.
Start with the question every servicer will ask: Does this hit me? The law draws a sharp line. A covered mortgage servicer is a nonbank servicer with 2,000 or more one-to-four-unit residential mortgage loans serviced or subserviced for others - not counting whole loans the firm owns, or loans being interim serviced before sale - as reported in the NMLS Mortgage Call Report. It also has to operate in two or more states, districts, or US territories. Clear both bars and the rules point straight at you.
For those firms, the law sets a capital and liquidity floor, and it builds in a shortcut. A covered servicer that meets the Federal Housing Finance Agency's eligibility requirements for enterprise single-family seller/servicers - the standards covering capital, net worth ratio, and liquidity - counts as meeting the state requirement. That applies even to servicers not approved to service for Fannie Mae or Freddie Mac. Firms also keep written policies showing how they meet the marks, plus enough operating liquidity to cover normal day-to-day costs.
Governance is the next pillar. Covered servicers must seat a board of directors charged with oversight, supported by a written governance framework, internal controls, and timely, accurate regulatory reporting - the NMLS Mortgage Call Report included. Boards set internal-audit standards sized to the firm's complexity and risk.
On top of that sits an annual external audit by an independent public accountant. The audit sizes up the internal-control structure, computes tangible net worth, validates mortgage-servicing-rights valuations where they apply, confirms adequate fidelity and errors-and-omissions coverage, and tests risk-management controls. Servicers also run a formal risk-management program spanning credit, liquidity, operational, market, legal, and reputation risk, and report on it to the board each year.
Not every servicer is fully swept in. The capital and liquidity section skips not-for-profit servicers, housing finance agencies, and firms that solely own or conduct reverse-mortgage servicing. The law also hands the state director flexibility: stiffer terms for a servicer judged extremely high-risk, a pass for one judged extremely low-risk, and a temporary suspension of the rules during severe economic, environmental, or societal events.
For multistate nonbank servicers, the takeaway is simple. Rhode Island has set a new operating baseline, and as of June 23 it is the law of the state.
