In a reversal, the Federal Reserve will no longer fight a plan to write rules under Dodd-Frank with new standards for mortgage servicer conduct.

The back story here is this. There’s a proposal in Dodd-Frank known as “risk retention,” under which loan originators must hold on to at least 5% of all of the loans they write, to give them “skin in the game.” The theory is that, with some risk involved, they would not write the kind of crazy loans they did in the run-up to the bubble. Certain “top-grade” loans would be exempt from the rules, and the standards for those loans have yet to be written, along with the entire risk retention guidelines. The rules for those top-grade loans will become the default setting in the mortgage business.

Since this governs the securitization markets, there’s an opportunity to rewrite that entire rulebook, including not just origination but securitization. That includes the conduct of the mortgage servicers, who are typically operating on behalf of a group of investors. So the FDIC wrote up an aggressive set of rules for servicer standards, which had never existed before. Two other entities engaged in the rule writing, the Fed and the OCC, resisted this effort initially. Now the Fed has changed its tune.

The FDIC has been pushing hard to ensure that new regulations on the mortgage bond market include clear instructions for how banks handle mortgages– and under what circumstances they can evict delinquent borrowers. The bank divisions that collect payments from borrowers and implement the foreclosure process– known as “mortgage servicers”– have been plagued by rampant problems with fraudulent documentation. This fraud has resulted in everything from illegal fees charged to borrowers to improper evictions.

The Fed had opposed using the mortgage bond rules to crack down on foreclosure abuses, despite pressure from the FDIC. But FDIC General Counsel Michael Krimminger recently told the Fed his agency would not support any new mortgage bond regulations that do not include strong rules forbidding foreclosure abuses. Krimminger told HuffPost that other regulatory agencies are “moving in our direction on the issue.”

Krimminger would not specify which agencies were coming around. But a separate source close to the discussions told HuffPost that the Fed has come on board, with systemic risk watchdogs at the central bank sympathetic to Krimminger’s position.

If you’ve been reading this space you know that the servicers have completely abused homeowners, but just for a more formal take, the Florida Attorney General’s office has detailed the evidence they’ve compiled. So there’s definitely a need for serious standards with real penalties at the state and federal level, and that’s what we’re moving toward.

This is a significant victory for the team of activists which has sprouted up around the foreclosure fraud issue. That includes politicians like Brad Miller, who along with other House Democrats urged federal regulators to write servicer standards into the risk retention rules. The people at Stop Servicer Scams, which includes economists and financial reform activists like Yves Smith, have laid out a set of simple rules for servicers and rounded up thousands of supporters. Congratulations to them.