Bowman: Nonbank Mortgage Regulatory Framework Needs Work

Federal Reserve Governor Michelle Bowman said in a speech today that regulators need to revisit the regulatory framework for nonbank mortgage lenders. While nonbanks weathered the early days of the coronavirus pandemic—with “mortgage delinquencies and the take-up on forbearance appear to be limited and well below early fears of significant problems,” she said—the funding model of nonbanks was a “prominent vulnerability.”

“I would argue that this ‘success’ was reliant on rising home prices, low defaults, and massive fiscal and monetary stimulus. But we certainly can’t count on all of these factors being present in future periods of economic stress,” Bowman added during a research conference hosted by the Federal Reserve Bank of Cleveland. She added that “our financial system and our mortgage market will be more resilient when they welcome and appropriately manage the risks associated with both bank and nonbank mortgage firms.”

Bowman said economic conditions have improved much more than many expected in the spring largely due to supportive fiscal and monetary policy but added “it’s clear, that doing the hard thinking and planning now—at a time when conditions afford us the time do so—is a very worthwhile investment.”