Market updates and sector developments

The CFPB has taken action against the National Collegiate Student Loan Trusts (NCSLT) and Pennsylvania Higher Education Assistance Agency (PHEAA) for multi-year servicing failures, alleging that the defendants failed to respond to borrowers seeking relief from student loan payments, including during the Covid-19 national emergency. The CFPB has filed proposed stipulated final judgments, which - if entered by the court - would require NCSLT and PHEAA to pay US$400,000 and US$1.75m in penalties respectively to the CFPB’s victims relief fund. They would also pay nearly US$3m in redress to harmed borrowers.

In this case, the CFPB alleges that the defendants violated the Consumer Financial Protection Act. Specifically, the complaint alleges that from 2015 until 2021, thousands of borrower requests - often seeking forms of payment relief - went unanswered. These included requests for co-signer release, extension of forbearance or deferment, loan settlement or forgiveness, Servicemember Civil Relief Act benefits, or other forms of payment or interest rate reduction.

As of February 2024, the 15 NCSLT securitisation trusts collectively held approximately 163,000 private student loans with approximately US$907m in outstanding balances. As of December 2023, PHEAA serviced a portfolio of student loans worth roughly US$17.8bn and has been the primary servicer for active loans held by NCSLT since at least 2006.

This marks the CFPB’s second public enforcement action against NCSLT, following the US Court of Appeals for the Third Circuit’s ruling that they are covered persons under the Consumer Financial Protection Act (SCI 22 March). That case remains pending in federal court.

In other news…

Transparency concerns highlighted
Fitch has placed Mount Street US (Georgia)’s CSS3 commercial special servicer rating on rating watch negative (RWN). The move reflects the rating agency’s concerns regarding transparency of information during the workout process, including the timely receipt and reporting of valuations for the BBCMS 2019-BWAY CMBS to all market participants, relative to other Fitch-rated special servicers.

Fitch expects to resolve the rating watch status within six months through a full rating review of Mount Street. The resolution may result in the affirmation, downgrade or withdrawal of the current special servicer rating.

The special servicer rating was assigned a negative rating outlook in January 2024, due to multiple years of high turnover among special servicing employees and slow adoption of the company's asset management application, as the creation of business plans for defaulted loans remains a manual process. Turnover at the special servicer included the former head of servicing, who departed in December 2023 and had been in the role since March 2021.

Corinne Smith