The Financial Stability Oversight Council (Council) has released its Report on Nonbank Mortgage Servicing, detailing the growth of the nonbank mortgage servicing sector and its critical roles in the mortgage market. The report identifies key vulnerabilities that could impair servicers’ ability to perform these critical functions and explains how these vulnerabilities could amplify shocks to the mortgage market and pose risks to financial stability.
“The nonbank mortgage servicing sector plays an important role in our economy, and the Council has produced a comprehensive analysis of risks in the sector and is making concrete recommendations to protect U.S. financial stability,” said Secretary of the Treasury Janet L. Yellen. “We need further action to promote safe and sound operations, address liquidity risks, and enable continuity of servicing operations when a servicer fails.”
In 2022, nonbank mortgage companies (NMCs) originated approximately two-thirds of mortgages in the United States and owned the servicing rights on 54 percent of mortgage balances. NMCs bring certain strengths to the mortgage market but also have vulnerabilities that could amplify and transmit shocks to the mortgage market and broader financial system under stress scenarios.
State regulators and federal agencies have taken steps in recent years to mitigate risks posed by NMCs’ rising share of mortgages serviced. However, existing state requirements combined with limited federal authorities do not adequately address these risks.
The Council’s report includes several recommendations aimed at promoting safe operations, addressing liquidity pressures during stress events, ensuring continuity of servicing operations, among others. These recommendations draw on existing authorities of state and federal regulators while also encouraging Congress to act to address identified risks.
The Council will continue monitoring risk evolution as per its Analytic Framework for Financial Stability Risk Identification, Assessment, and Response adopted in November 2023.
