In a new report on the nonbank mortgage servicing industry, the Financial Stability Oversight Council said that a patchwork of state laws and limited federal oversight have failed to address the risks that the sector poses to the U.S. financial system. The report, which was issued today, noted that nonbank mortgage companies, or NMCs, originate and service a majority of mortgages in the U.S. However, NMCs have “key vulnerabilities” that “can amplify shocks to the mortgage market and thereby pose risks to financial stability.”
“[B]ecause NMCs focus almost exclusively on mortgage-related products and services, shocks to the mortgage market can lead to significant deterioration in NMC income, balance sheets and access to credit simultaneously,” the council concluded. “NMCs rely heavily on financing that can be repriced or canceled by the lender at times when the NMC is under financial stress. In addition to these liquidity and leverage vulnerabilities, NMCs face significant operational risk because mortgage servicing is complex and encompasses third-party and cybersecurity risks.”
The council said it supports efforts by state regulators and federal agencies to act within their authorities to promote safe and sound operations, address liquidity pressures in the event of stress, and ensure the continuity of servicing operations. It also encouraged Congress to promote greater stability in the mortgage market and the economy by addressing the risks outlined in the report.
