Select Portfolio Servicing has resolved allegations that it violated state and federal rules aimed at protecting borrowers from foreclosure during the pandemic.

SPS, which an investor consortium bought from UBS in a deal that closed last year, agreed to pay $4.6 million to settle the legacy charges with California Attorney General Rob Bonta. The company had not immediately responded to a request for comment at the time of this writing.

Bonta pledged that $3 million from the settlement would go "right back into the pockets of thousands of impacted homeowners" through automated payments.

The California official had alleged that the company had provided insufficient information around forbearance authorized during the pandemic, including details around how to exit them and apply for other payment relief options, including timeline information.

Bonta also had alleged SPS had sent statements charging late fees in violation of the rules at the time; and that the company didn't provide a single point of contact to support foreclosure prevention requests as called for under the state's Homeowner Bill of Rights.

While some rules such as the state's SPOC requirement are still in place, others have since changed to account for the return to a more normalized market after the pandemic, during which policymakers directed servicers and housing agencies to offer many temporary leniencies.

The settlement points to a heightened risk of compliance actions when servicing rules are shifting. 

Consumer Financial Protection Bureau officials said they would give servicers some leeway during the pandemic. Multiple companies nevertheless ended up facing and settling federal, state or private claims of rule violations, including Wells Fargo, Carrington and BSI Financial.

Servicing protocols remain in flux.

The current regulatory environment

Recently, the Department of Veterans Affairs finalized a new form of partial claim and the Federal Housing Administration unveiled a new set of procedures for distressed loans that has temporarily raised delinquencies. Ginnie Mae has authorized some reporting leeway to account for this.

Federal officials have largely pursued a deregulatory agenda recently while certain states have become more active.

The American Bankers Association on Friday called for more streamlining and updates to Reg X proposals that govern servicing in line with one of President Trump's recent executive orders and changes that have taken place since they were first drawn up.

"ABA believes that the sweeping changes and overly expansive borrower protections in the 2024 proposal are unnecessary and counterproductive," Teshale Smith, senior counsel, regulatory compliance and policy, wrote in a letter to Russell Voight, acting director of the CFPB.

Among the changes ABA is suggesting is a doubling in the size of a small servicer exemption to 10,000 from 5,000 loans.

"The current 5,000 loan threshold, unchanged since 2014, no longer reflects the operational realities facing community banks, many of which service portfolios that are just above the existing cap yet continue to provide high-quality, relationship-based servicing," Smith wrote.

Other recommendations in the letter include simplified disclosures.

"ABA urges the Bureau to develop concise, meaningful model language with safe harbor protection and to focus notices on encouraging direct borrower-servicer communication, the approach that proved most effective during the pandemic," Smith said in the letter.