Report on
Nonbank Mortgage
Servicing
2024
| I
FSOC Report on Nonbank Mortgage Servicing
Table of Contents
Executive Summary ..................................................................................................................................1
1 Introduction .............................................................................................................................................3
Box A: Overview of the Regulatory Framework for Nonbank Mortgage
Companies and the Role of Key Market Participants ........................................................5
2 Mortgage Servicers ..............................................................................................................................7
2.1 Servicer Responsibilities .....................................................................................................7
2.2 Servicer Business Models .................................................................................................8
3 The Growth in Agency Securitization and Nonbank Mortgage Companies ...................... 13
3.1 Increased Government and Enterprise Backing of the Mortgage Market ........... 13
3.2 Increased NMC Presence in the Mortgage Market .................................................. 15
3.2.1 Increased NMC Share of Mortgage Originations ....................................... 17
3.2.2 Increased NMC Share as Agency Counterparties .................................... 18
3.3 Increased Aggregate Mortgage Market Exposure to Agency
Securitization and NMCs ........................................................................................................ 20
4 Strengths of Nonbank Mortgage Companies ............................................................................ 21
5 Vulnerabilities of Nonbank Mortgage Companies ................................................................... 24
5.1 Vulnerability to Macroeconomic Shocks ......................................................................24
5.2 Risks Associated with NMC Assets ..............................................................................28
5.3 Liquidity Risk ......................................................................................................................29
5.3.1 Liquidity Risk from Financing Sources .........................................................29
5.3.2 Liquidity Risk from Servicing Obligations and
Repurchase Requests ................................................................................................ 32
5.4 Leverage .............................................................................................................................. 34
5.5 Operational Risk ................................................................................................................ 34
5.6 Interconnections ............................................................................................................... 35
6 Transmission Channels .................................................................................................................... 36
6.1 Critical Functions and Services ...................................................................................... 36
6.1.1 Servicer Financial Stress ...................................................................................36
6.1.2 Servicing Transfers ............................................................................................ 37
6.1.3 NMC Bankruptcy ................................................................................................ 38
6.1.4 Mortgage Origination Disruptions ................................................................. 39
6.2 Exposures ........................................................................................................................... 39
6.3 Contagion and Asset Liquidation .................................................................................40
7 Existing Authorities, Recent Actions, and Council Recommendations ................................. 41
7.1 Promoting Safe and Sound Operations ......................................................................... 41
Recommendations ...................................................................................................... 43
II |
FSOC Report on Nonbank Mortgage Servicing
7.2 Addressing Liquidity Pressures in the Event of Stress ............................................ 44
Recommendations ..................................................................................................... 46
7.3 Ensuring Continuity of Servicing Operations ............................................................46
Recommendation ....................................................................................................... 47
Abbreviations ......................................................................................................................................... 49
List of Figures .......................................................................................................................................... 51
EXECUTIVE SUMMARY | 1
FSOC Report on Nonbank Mortgage Servicing
Executive Summary
e statutory duties of the Financial Stability Oversight Council (FSOC or Council)
1
include
monitoring the nancial services marketplace to identify potential threats to U.S. nancial
stability; identifying gaps in regulation that could pose risks to U.S. nancial stability; and making
recommendations to enhance the integrity, eciency, competitiveness, and stability of U.S.
nancial markets. In recent years, the Council has identied potential risks to our nancial system
arising from the vulnerabilities of nonbank mortgage servicers.
2
Nonbank mortgage companies (NMCs) carry out critical servicing functions for the residential
mortgage market and originate and service the majority of U.S. residential mortgages.
3
However,
NMCs have key vulnerabilities that can impair their ability to carry out these functions. NMCs’
vulnerabilities can amplify shocks to the mortgage market and thereby pose risks to nancial
stability.
e NMC share of mortgage origination and servicing has increased considerably since the
2007-09 nancial crisis. At the same time, there has also been an increasing share of mortgages
outstanding funded by securitizations guaranteed by the Federal National Mortgage Association
(Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), and the Government
National Mortgage Association (Ginnie Mae), collectively referred to as the “Agencies.” e federal
government provides nancial support to Fannie Mae and Freddie Mac in conservatorship and
explicitly guarantees Ginnie Mae securitizations. As NMCs have become increasingly important
servicers for the Agencies, the exposure of the federal government and the mortgage market to the
vulnerabilities of these companies has increased signicantly.
NMCs bring some strengths to the mortgage market. NMCs are generally quick to adapt their
operations as market conditions change. Some NMCs have been early adopters of technological
developments and other practices that have helped make mortgage origination and servicing more
ecient and consumer friendly in certain instances. NMCs are also key mortgage originators and
servicers for groups that have historically been underserved by the mortgage market.
However, because NMCs focus almost exclusively on mortgage-related products and services,
shocks to the mortgage market can lead to signicant deterioration in NMC income, balance
sheets, and access to credit simultaneously. NMCs rely heavily on nancing that can be repriced or
canceled by the lender at times when the NMC is under nancial stress. In addition to these liquidity
1 e Council is composed of ten voting members who head the U.S. Department of the Treasury, the Board of
Governors of the Federal Reserve System (Federal Reserve Board), the Oce of the Comptroller of the Currency
(OCC), the Consumer Financial Protection Bureau (CFPB), the Securities and Exchange Commission (SEC), the
Federal Deposit Insurance Corporation (FDIC), the Commodity Futures Trading Commission (CFTC), the Federal
Housing Finance Agency (FHFA), and the National Credit Union Administration (NCUA), and an independent
member with insurance expertise, plus ve non-voting members. Two of the nonvoting members are the directors of
the Oce of Financial Research (OFR) and the Federal Insurance Oce (FIO). e other three non-voting members
are a state insurance commissioner, a state banking supervisor, and a state securities commissioner designated by
their peers.
2 See Financial Stability Oversight Council. Annual Report. Washington, D.C.: Council, December 14, 2023. https://
home.treasury.gov/system/les/261/FSOC2023AnnualReport.pdf; and Financial Stability Oversight Council. Annual
Report. Washington, D.C.: Council, May 7, 2014. https://home.treasury.gov/system/les/261/FSOC-2014-Annual-
Report.pdf. See also Ginnie Mae. “An Era of Strategic Transformation.” Washington, D.C.: Ginnie Mae, September
2014. https://www.ginniemae.gov/newsroom/Documents/ginniemae_an_era_of_transformation.pdf.
3 is report focuses on one- to four-family property forward residential mortgages.
EXECUTIVE SUMMARY2 |
FSOC Report on Nonbank Mortgage Servicing
and leverage vulnerabilities, NMCs face signicant operational risk because mortgage servicing is
complex and encompasses third-party and cybersecurity risks.
If these vulnerabilities result in NMCs being unable to carry out their critical functions at times
of market stress, borrowers could experience disruption and harm, the Agencies and other credit
guarantors could experience large losses, and there could be payment delays to stakeholders such as
insurance companies and local governments. Since NMCs have similar business models and share
nancing sources and subservicing providers, distress in the NMC sector may be widespread during
times of strain. e federal government has only limited tools to mitigate and manage these risks.
State regulators and federal agencies have taken steps to mitigate the risks posed by NMCs in recent
years, but the Council is concerned that the combination of various state requirements and limited
federal authorities to impose additional requirements does not adequately and holistically address
the risks described in this report. e Council supports recent actions and continued eorts 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.
e Council also encourages Congress to promote greater stability in the mortgage market and the
economy by addressing the identied risks. e Council will continue to monitor the evolution of
these risks and may take or recommend additional actions to mitigate such risks in accordance
with the Analytic Framework for Financial Stability Risk Identication, Assessment, and Response
(Analytic Framework), if needed.
1 INTRODUCTION | 3
FSOC Report on Nonbank Mortgage Servicing
1 Introduction
In 2022, NMCs originated approximately two-thirds of mortgages in the United States and owned
the servicing rights on 54 percent of mortgage balances.
4
NMC market share has risen signicantly
since the low it reached in 2008, when NMCs originated only 39 percent of mortgages and owned
the servicing rights on only 4 percent of mortgage balances. As indicated by their large market
share, NMCs perform critical functions for the mortgage market through their operational capacity
in loan origination and servicing. Although some NMCs specialize only in origination or servicing,
larger NMCs tend to focus on both. While this report explores the vulnerabilities of both these
interdependent activities, the Council’s primary concern for this report is the ability of NMCs to
carry out critical mortgage servicing responsibilities in times of stress.
NMCs bring strengths to the mortgage market. ey are key mortgage originators and servicers for
groups that are historically underserved by the mortgage market. NMCs can specialize in certain
products or operations. For example, some NMCs developed technology platforms that enabled
them to originate mortgages quicker than their competitors. Others expanded into specialty default
servicing for nonperforming loans and loss mitigation.
NMCs are also subject to signicant risks and have key vulnerabilities. Since NMCs only oer
mortgage-related products and services, their protability uctuates with changes in mortgage
demand and mortgage defaults—much more so than for nancial institutions with diversied lines
of business. Likewise, NMCs’ high exposure to mortgage risk means they can experience adverse
eects on their income, balance sheets, and access to credit simultaneously. NMCs’ reliance on debt
that can be repriced, reduced, or canceled at times of stress can lead to signicant liquidity risk,
which is exacerbated by high leverage carried by some NMCs. As a result of these liquidity risks, high
leverage, and other vulnerabilities, rating agencies typically assign speculative-grade credit ratings
to NMCs’ debt obligations. Finally, vulnerabilities are similar across NMCs. As a result, certain
macroeconomic scenarios may lead to stress across the entire sector.
When these vulnerabilities compromise NMCs’ ability to carry out their critical functions, borrowers
may suer from disruptions in the servicing of their mortgages and credit guarantors and insurers
may experience sizeable losses. Commonalities in NMC vulnerabilities and their shared funding
providers and subservicers could lead to contagion. Financial distress at NMCs that is suciently
severe and widespread might lead to a reduction in servicing capacity and in the availability of
mortgage credit.
4 Origination shares for 2008 and 2022 are from data collected under the Home Mortgage Disclosure Act (HMDA) by
the Federal Financial Institutions Examination Council (“HMDA data”). Except as noted, HMDA statistics in this
report for the years 2004 and later are based on closed-end, rst-lien purchase mortgages collateralized by owner-
occupied, site-built one-to-four family properties. Prior to 2004, HMDA data did not include information on lien
status, number of units, or construction type. Data from 2003 and earlier are therefore for all closed-end purchase
mortgages collateralized by owner-occupied properties. HMDA data cover about 90 percent of the residential
mortgage market. Bhutta, Neil, Steven Laufer, and Daniel R. Ringo. “Residential Mortgage Lending in 2016: Evidence
from the Home Mortgage Disclosure Act Data.” Federal Reserve Bulletin, 103: 1, Washington, D.C.: Federal Reserve
Board, November 2017. https://www.federalreserve.gov/publications/les/2016_hmda.pdf.
Servicing share is for the fourth quarter of 2022 and is from Inside Mortgage Finance. “Nonbanks and Second-Tier
Servicers Gain Share in 4Q23.” Inside Mortgage Finance (February 2, 2024). It is based on the 50 largest servicers.
Servicing share for 2008 is from Figure 10b in Federal Reserve Board, FDIC, OCC, NCUA. “Report to the Congress
on the Eect of Capital Rules on Mortgage Servicing Assets.” Washington, D.C.: Federal Reserve Board, FDIC, OCC,
NCUA, June 2016. https://www.federalreserve.gov/publications/other-reports/les/eect-capital-rules-mortgage-
servicing-assets-201606.pdf.
1 INTRODUCTION4 |
FSOC Report on Nonbank Mortgage Servicing
In recent years, the federal government has become increasingly exposed to concentration risks
and potential losses stemming from the fragilities of NMCs. e federal government supports the
availability of U.S. mortgages through insurance and direct guarantees of loans nanced through
Ginnie Mae securitizations and through its nancial support for Fannie Mae and Freddie Mac
(the Enterprises) in conservatorship.
5
e Agencies depend on private rms to service loans, and
those rms are primarily NMCs. From January 2014 to January 2024, the share of Agency servicing
handled by NMCs increased from 35 percent to 66 percent. In total, NMCs serviced approximately
$6 trillion for the Agencies in 2023 and six NMCs serviced Agency portfolios that were each in excess
of $450 billion.
6
With servicing so concentrated in NMCs, state and federal regulators and the Agencies may have
diculty enforcing borrower protections and minimizing taxpayer losses in the event that a large
NMC or several mid-sized NMCs fail. Large servicing portfolios cannot be transferred quickly
because the transfer process is inherently lengthy and complicated. In addition, it might be dicult
to identify another servicer to take over the portfolio. e similarity of NMC business models means
that other NMCs might also have the same issues and be unable to acquire new portfolios. While the
Agencies have backup servicing capacity, that capacity could quickly be exhausted in the event of a
large NMC failure or multiple failures.
As a result, any large nonbank mortgage servicer that failed might need to remain operational while
in bankruptcy for some time to maintain critical mortgage servicing functions. While this could be
done in an adequately nanced bankruptcy under the reorganization chapter of the Bankruptcy
Code (Chapter 11), absent such funding or sucient liquidity just before bankruptcy, the NMC
would likely only be able to sustain operations for a limited period of time. Moreover, because the
risk proles of NMCs are so similar, it is possible that multiple NMCs with common creditors could
be in bankruptcy simultaneously. is situation could create signicant challenges and potential
disruptions to borrowers and the Agencies, as each bankruptcy is oriented toward resolving a single
company. As described in this report, the federal government has only limited tools to mitigate and
manage the risks and ensure that borrowers and taxpayers are suciently protected.
Depository institutions (referred to as “banks” in this report for simplicity) are not immune to
nancial strains and changes in macroeconomic conditions, and federal and state regulators
have identied banks’ servicing errors in both loss mitigation and foreclosure actions. However,
federal and state banking regulators have supervisory and regulatory tools to promote the safety
and soundness of the banking system. Federal and state banking regulators also utilize risk-based
supervision to focus on mortgage servicing risks and safeguard consumer protections. Further,
federal banking agencies have resolution tools to enable core operations, such as mortgage
servicing by a bank, to continue in the event of a bank failure. e federal government’s regulatory,
supervisory, and resolution authorities are more limited with respect to NMCs, although states have
broad authorities.
e Council has raised concerns about the vulnerabilities of NMCs for several years. ose concerns
have become more acute because of the increasing federal government exposure to NMCs and
because the NMCs that originate mortgage loans are currently under nancial strain due to the low
5 See Section 3.1 for further discussion on nancial support provided by the government to Fannie Mae and Freddie
Mac.
6 Calculation for total nonbank mortgage servicing balances is based on data from Board of Governors of the Federal
Reserve System, Financial Accounts of the United States. Washington D.C. at https://www.federalreserve.gov/
releases/z1/ and from eMBS at https://www.embs.com/. Calculation of NMCs with Agency portfolios in excess of
$450 billion is from Inside Mortgage Finance at https://www.insidemortgagenance.com/.
1 INTRODUCTION | 5
FSOC Report on Nonbank Mortgage Servicing
volume of mortgage originations since 2022. Vulnerabilities in mortgage origination can bleed into
servicing operations at rms that both originate and service mortgages.
is report begins with an overview of mortgage servicing. It then describes the mortgage market
shifts toward NMCs, the increased federal government exposure to these rms, NMCs’ strengths
and vulnerabilities, and the transmission channels that could lead to NMC vulnerabilities
amplifying the eect of a shock to nancial stability in a stress scenario. e report concludes with
recommendations that could promote greater stability in the mortgage market.
Box A: Overview of the Regulatory Framework for Nonbank Mortgage
Companies and the Role of Key Market Participants
A combinat ion of state financial regulators, federal agencies, and market participants play dierent roles in
overseeing NMCs. State financial regulators have broad authorities, including prudential regulation, over
NMCs. The Consumer Financial Protection Bureau has a consumer protection focus but is not designed
to be a comprehensive prudential regulator. Ginnie Mae and the Enterprises, which function as market
participants, can negotiate requirements for their counterparties, including the nonbank mortgage servicers
with which they do business, as a matter of contract. The Federal Housing Finance Agency has regulatory
authority over the Enterprises. Each has dierent objectives regarding their oversight of, or engagement
with, nonbank mortgage servicers.
State Financial Regulators
State financial regulators are the primary regulators of NMCs. They have broad licensing, examination,
investigation, enforcement, and prudential regulatory authority for NMCs that operate within their respective
state. A license is required in each state in which a company conducts business.
7
States can initiate
examinations or investigations at any time, gain immediate access to books and records upon request,
compel production of documents or information through a subpoena, and enforce financial condition
requirements as a condition of holding a license to do business. Through their administrative enforcement
powers, state financial regulators can issue consent judgments or consent orders compelling NMCs to
restructure operations and/or management, cease certain activities, and prohibit the acquisition of new
servicing rights. These administrative enforcement powers allow states to, among other things, require
regular reporting on the status of a loan servicing portfolio, and impose deadlines for compliance with state
and federal consumer protection regulations, as well as financial condition and corporate governance
requirements.
8
States also coordinate multistate supervision through the Conference of State Bank Supervisors (CSBS).
CSBS is the nationwide organization of state banking and financial regulators from all 50 states, the District
of Columbia, and the U.S. territories. CSBS also administers the Nationwide Multistate Licensing System
(NMLS) on behalf of state regulators, which includes maintaining all regulatory data submitted by individual
mortgage loan originators and NMC licensees for annual license renewals as well as periodic financial,
activity, banking, and control information at the company level.
9
The quarterly Mortgage Call Report is a
large database dating to 2011 containing activity and financial data for all companies licensed through NMLS
and is largely modeled after the Mortgage Bankers’ Financial Reporting Form (MBFRF) data collected from
the same companies by the Enterprises and Ginnie Mae.
10
The State Examination System is a component of
NMLS that is utilized by states to conduct exams and facilitates multistate exams.
11
7 CSBS. “State Licensing.” State Regulatory Registry, 2024. https://mortgage.nationwidelicensingsystem.org/slr/Pages/
default.aspx.
8 CSBS. “Mortgage Companies – State Authorities.” CSBS, April 1, 2024. https://www.csbs.org/mortgage-companies-
state-authorities.
9 CSBS. “NMLS Modernization FAQs.” CSBS. https://www.csbs.org/nmls-modernization-faqs.
10 CSBS. “Mortgage Call Report.” CSBS. https://www.csbs.org/nmls-modernization-faqs.
11 CSBS. “State Examination System (SES).” CSBS. https://www.csbs.org/aboutSES.
1 INTRODUCTION6 |
FSOC Report on Nonbank Mortgage Servicing
Consumer Financial Protection Bureau (CFPB)
The CFPB has supervisory authority over NMCs to assess their compliance with federal consumer financial
law and enforcement authority to take action against violations of federal consumer financial laws. The
CFPB also has rulemaking authority with respect to federal consumer financial law, including those related
to mortgage origination and servicing. The CFPB has a consumer protection focus; it is not designed to be a
comprehensive federal prudential regulator for nonbank mortgage servicers.
Ginnie Mae
Ginnie Mae is a government-owned corporation of the federal government within the U.S. Department
of Housing and Urban Development (HUD) and is subject to annual congressional appropriations for its
salaries and expenses spending. Ginnie Mae provides guarantees to investors in mortgage-backed security
(MBS) programs collateralized by loans insured or guaranteed by other federal government mortgage
lending programs, including the Federal Housing Administration (FHA), the Department of Veterans Aairs
(VA), the Rural Housing Service (RHS), and the Public and Indian Housing Program (PIH). In its role as a
guarantor, Ginnie Mae is tasked with providing stability to the secondary market for residential mortgages,
increasing the liquidity of federally-backed residential mortgage investments, and managing federally-
owned mortgage portfolios with minimum loss to taxpayers. Ginnie Mae has the contractual right to set
capital, liquidity, and other eligibility requirements for companies participating in its program, as well as to
conduct compliance reviews of its counterparties. However, it has no direct prudential regulatory authority
over its counterparties.
Federal Housing Finance Agency (FHFA)
FHFA is responsible for the eective supervision, regulation, and housing mission oversight of Fannie
Mae, Freddie Mac, and the Federal Home Loan Banks (FHLBanks). In this capacity, FHFA may regulate and
supervise the Enterprises’ and FHLBanks’ counterparty credit risk. FHFA has no direct regulatory authority
over NMCs or any other counterparties of the Enterprises. Since 2008, FHFA has served as conservator
for Fannie Mae and Freddie Mac. As conservator, FHFA has the powers of the management, boards, and
shareholders of Fannie Mae and Freddie Mac, including authority to set contractual standards for and
exercise contractual rights of each Enterprise with respect to its counterparties.
12
The Enterprises
The Enterprises support liquidity in the secondary mortgage market for housing finance by directly buying
and securitizing mortgages and providing guarantees on MBS backed by eligible conforming loans.
Although the Enterprises are government-sponsored and have a public mission, they are private companies
and are not regulatory agencies. The Enterprises operate as business corporations and do not regulate
seller/servicers. As a matter of prudent risk management, the Enterprises consider possible risk exposure
from contractual relationships with seller/servicers and assess, monitor, and take appropriate actions to
address the risks to which they are exposed in their business relationships. As part of their risk management
processes, Fannie Mae and Freddie Mac each have established an approval process for seller/servicers
that includes ascertaining that seller/servicers meet minimum financial eligibility requirements and
monitoring eligibility compliance of approved seller/servicers.
13
12 FHFA. “History of Fannie Mae and Freddie Mac Conservatorship.” Washington, D.C.: FHFA, October 17, 2022. https://
www.fhfa.gov/Conservatorship/Pages/History-of-Fannie-Mae--Freddie-Conservatorships.aspx.
13 Fannie Mae. “Maintaining Seller-Servicer Eligibility.” Washington, D.C.: Fannie Mae, November 1, 2023. https://
selling-guide.fanniemae.com/sel/a4-1-01/maintaining-sellerservicer-eligibility and Freddie Mac. “Eligibility Criteria.”
Tysons, VA: Freddie Mac, September 30, 2023. https://guide.freddiemac.com/app/guide/section/2101.1.
2 MORTGAGE SERVICERS | 7
FSOC Report on Nonbank Mortgage Servicing
2 Mortgage Servicers
2.1 Servicer Responsibilities
is report uses the term “servicer” to mean a rm that holds the servicing rights on a mortgage and
records this mortgage servicing right (MSR) as an asset on its balance sheet. Section 5.2 describes
MSRs in more detail. Servicers are responsible for ensuring that servicing functions are carried
out in accordance with the servicing contracts and applicable regulations; as described later,
some servicers carry out these functions themselves and others subcontract them to third parties.
Servicers are also responsible for a variety of cash outlays required under the servicing contract. As
discussed later in this report, for example, if a borrower does not make a mortgage payment, the
servicer may be required to make the missed payment amounts to investors, insurance companies,
and local governments.
Borrowers, guarantors, insurers, and investors depend on servicers to carry out a wide range of
loan administration duties in an accurate and timely way. ese duties include collecting and
recording borrower payments of mortgage principal and interest, taxes, and insurance premiums
and distributing those payments to investors, local governments, and insurance companies. ese
duties also include responsibilities associated with borrowers who do not make their payments,
such as contacting these borrowers and determining available loss mitigation plans. If a borrower
is unable to make mortgage payments even under a loss mitigation plan, the servicer is responsible
for enforcing the mortgage contract and identifying potential liquidation outcomes, such as a short
sale, deed-in-lieu of foreclosure, or foreclosure; evicting the borrower if necessary; and maintaining
the property so that its vacancy does not increase losses for the owner of the mortgage credit
risk. In addition, federal or state governments may establish borrower relief programs in extreme
circumstances that servicers are required to implement, such as the broad mortgage forbearance
provided during the COVID-19 public health emergency.
ese loan administration duties entail considerable interactions with borrowers, including billing,
maintaining escrow accounts, handling customer service, and working with delinquent borrowers.
Borrowers sometimes report frustrations with their interactions with both bank and NMC servicers.
In both 2021 and 2022 the CFPB received approximately 30,000 complaints from consumers about
their mortgages, with about half of those complaints centered on “trouble during the payment
process.”
14
14 CFPB. “Consumer Response Annual Report.” Washington, D.C.: CFPB, March 31, 2022. https://les.consumernance.
gov/f/documents/cfpb_2021-consumer-response-annual-report_2022-03.pdf and CFPB. “Consumer Response
Annual Report.” Washington, D.C.: CFPB, March 31, 2023. https://les.consumernance.gov/f/documents/
cfpb_2022-consumer-response-annual-report_2023-03.pdf.
Mortgage loan administration duties of servicers include:
• Collecting and recording payments.
• Distributing payments to investors, tax authorities, and insurance companies as needed.
• Contacting borrowers (especially for delays or delinquencies).
• Determining available loss mitigation strategies and implementing loss mitigation plans.
• Foreclosing, evicting, and maintaining properties after eviction.
2 MORTGAGE SERVICERS8 |
FSOC Report on Nonbank Mortgage Servicing
Some servicers conduct these critical functions in-house, while others contract them out to a
third-party subservicer. is report uses the term “subservicer” to describe a rm that performs
servicing activities on behalf of the servicer based on contractual requirements. Subservicers have
considerable operational risk but less liquidity and funding risk for cash outlays than servicers. Both
banks and NMCs can perform subservicing and use subservicers.
2.2 Servicer Business Models
Servicer business models vary and aect the servicer’s choice of whether to perform loan
administration duties in-house or use a subservicer. Some servicers have active mortgage
origination platforms and carry out the loan administration duties themselves, often to maximize
their interactions with borrowers. A strong borrower connection increases the likelihood that
borrowers will renance their mortgages with their current originators. Originators without an
in-house servicing platform may still value the servicing income and will retain the servicing while
contracting out the loan administration to a subservicer. Other servicers do not have active
origination platforms and own the MSRs as passive investors. Mortgage real-estate investment
trusts, for example, hold MSRs to earn yield and to hedge mortgage basis volatility and slower
prepayment speeds related to other assets in their portfolios. Firms that primarily value these
hedging properties are more likely to outsource loan administration duties to a subservicer.
As passive MSR investors have expanded their MSR holdings, there is an increasing share of
mortgages with an NMC holding the servicing rights and contracting out the loan administration
duties to a third-party subservicer. As of the fourth quarter of 2023, of the mortgage balances for
which an NMC held the servicing rights, the administrative duties were handled by a third-party
subservicer for approximately half of those balances (see Figure 1).
15
is share is sharply higher
than in 2015, when subservicers handled the administrative responsibilities for approximately 25
percent of the portfolios of nonbank servicers.
15 Statistics calculated from Mortgage Call Report data collected under the NMLS. Statistics calculated for all mortgages
serviced by NMCs, including some mortgages not funded by Agency securitization.
Primary Activity of Servicers and Subservicers
Servicer Subservicer
Hold servicing rights Do not hold servicing rights
Record servicing assets on balance
sheet
Do not record servicing assets on
balance sheet
Retain some (or most) mortgage loan
administration functions
Provide loan administration functions
that are not performed by the servicer
Responsible for cash outlays required
under servicing contract
Not responsible for cash outlays
required under servicing contract
Note: The figure shows the share of all unpaid principal balances serviced by an NMC for
which another firm carries out subservicing responsibilities.
Source: NMLS Mortgage Call Report
Figure 1: Share of NMC Servicing Subserviced by Another Firm
2 MORTGAGE SERVICERS | 9
FSOC Report on Nonbank Mortgage Servicing
To illustrate why managing nonbank mortgage servicer failures might be challenging for the
Agencies, Table 1 shows data from Inside Mortgage Finance for the 20 largest Agency servicers (both
bank and nonbank) as of the fourth quarter of 2023.
16
e table shows the size of each servicer’s
portfolio, the servicer’s market share, whether the servicer substantially relies on a subservicer for
servicing its portfolio, and whether the servicer acts as a material subservicer for other servicers. A
servicer is dened as utilizing a subservicer if the servicer is not listed in Inside Mortgage Finance’s
“Top Primary Mortgage Servicers” table.
17
A servicer is dened as providing subservicing for
other servicers if it is listed in Inside Mortgage Finance’s “Top Residential Subservicers” table.
18
is classication only captures signicant subservicing relationships; servicers that perform the
loan administration duties for most of the loans in their servicing portfolios may still have smaller
portfolios that are subserviced by other rms.
16 Bancroft, John. “Agency Servicing Ranking Shaped by 4Q MSR Sales.” Inside Mortgage Finance (January 12, 2024).
https://www.insidemortgagenance.com/articles/229895-agency-servicing-ranking-shaped-by-4q24-msr-
sales?v=preview.
17 Inside Mortgage Finance. “Nonbanks and Second-Tier Servicers Gain Share in 4Q23.” Inside Mortgage Finance
(February 2, 2024). https://www.insidemortgagenance.com/products/313275-nonbanks-and-second-tier-servicers-
gain-share-in-4q23.
18 Muolo, Paul. “Some Headwinds for the Subservicing Sector.” Inside Mortgage Finance (March 22, 2024). https://www.
insidemortgagenance.com/articles/230529-some-headwinds-for-the-subservicing-sector?v=preview.
Some servicers conduct these critical functions in-house, while others contract them out to a
third-party subservicer. is report uses the term “subservicer” to describe a rm that performs
servicing activities on behalf of the servicer based on contractual requirements. Subservicers have
considerable operational risk but less liquidity and funding risk for cash outlays than servicers. Both
banks and NMCs can perform subservicing and use subservicers.
2.2 Servicer Business Models
Servicer business models vary and aect the servicer’s choice of whether to perform loan
administration duties in-house or use a subservicer. Some servicers have active mortgage
origination platforms and carry out the loan administration duties themselves, often to maximize
their interactions with borrowers. A strong borrower connection increases the likelihood that
borrowers will renance their mortgages with their current originators. Originators without an
in-house servicing platform may still value the servicing income and will retain the servicing while
contracting out the loan administration to a subservicer. Other servicers do not have active
origination platforms and own the MSRs as passive investors. Mortgage real-estate investment
trusts, for example, hold MSRs to earn yield and to hedge mortgage basis volatility and slower
prepayment speeds related to other assets in their portfolios. Firms that primarily value these
hedging properties are more likely to outsource loan administration duties to a subservicer.
As passive MSR investors have expanded their MSR holdings, there is an increasing share of
mortgages with an NMC holding the servicing rights and contracting out the loan administration
duties to a third-party subservicer. As of the fourth quarter of 2023, of the mortgage balances for
which an NMC held the servicing rights, the administrative duties were handled by a third-party
subservicer for approximately half of those balances (see Figure 1).
15
is share is sharply higher
than in 2015, when subservicers handled the administrative responsibilities for approximately 25
percent of the portfolios of nonbank servicers.
15 Statistics calculated from Mortgage Call Report data collected under the NMLS. Statistics calculated for all mortgages
serviced by NMCs, including some mortgages not funded by Agency securitization.
Primary Activity of Servicers and Subservicers
Servicer Subservicer
Hold servicing rights Do not hold servicing rights
Record servicing assets on balance
sheet
Do not record servicing assets on
balance sheet
Retain some (or most) mortgage loan
administration functions
Provide loan administration functions
that are not performed by the servicer
Responsible for cash outlays required
under servicing contract
Not responsible for cash outlays
required under servicing contract
Note: The figure shows the share of all unpaid principal balances serviced by an NMC for
which another firm carries out subservicing responsibilities.
Source: NMLS Mortgage Call Report
Figure 1: Share of NMC Servicing Subserviced by Another Firm
2 MORTGAGE SERVICERS10 |
FSOC Report on Nonbank Mortgage Servicing
Table 1: Top Agency MBS Servicers, Q4 2023
Firm Type Rank Servicing
UPB
Balance (in
$ Billions)
Market
Share
(Percent)
Utilizes
Subservicer
Provides
Subservicing
Lakeview/Bayview Loan
Servicing
Nonbank 1 644.5 7.3 Ye s No
Chase Home Finance Bank 2 597.0 6.7 No No
PennyMac Corp Nonbank 3 588.5 6.7 No No
Wells Fargo Bank 4 539.9 6.1 No No
Mr. Cooper Group Nonbank 5 531.7 6.0 No Ye s
New Rez/Caliber Home Loans
(Rithm)
Nonbank 6 474.1 5.4 No Ye s
Rocket Mortgage Nonbank 7 463.6 5.2 No Ye s
Freedom Mortgage Corp Nonbank 8 456.7 5.2 No Ye s
United Wholesale Mortgage,
LLC
Nonbank 9 274.4 3.1 Ye s No
U.S. Bank NA Bank 10 220.0 2.5 No No
Matrix Financial Services/Two
Harbors
Nonbank 11 213.2 2.4 Ye s No
Truist Bank 12 210.6 2.4 No No
PNC Bank NA Bank 13 202.5 2.3 No No
Ocwen Financial/PHH Mortgage Nonbank 14 163.0 1.8 No Ye s
Onslow Bay Financial Nonbank 15 150.3 1.7 Ye s No
LoanDepot.com LLC Nonbank 16 134.0 1.5 No No
Carrington Mortgage Services,
LLC
Nonbank 17 126.6 1.4 No Ye s
Fifth Third Bank Bank 18 97.6 1.1 No No
Citizens Bank NA RI
Bank 19 96.3 1.1 No No
CMG Mortgage Inc Nonbank 20 92.6 1.0 Ye s No
Top 10 Agency MBS Servicers
Total
4,790.4 54.1
Top 20 Agency MBS Servicers
Total
6,277.1 70.9
Total Nonbank Agency MBS
Servicers in Top 20
4,313.2 48.7
All Agency MBS Servicers Total 8,847.8
Note: Servicing unpaid principal balance (UPB) is for mortgages in Agency pools only, as estimated by Inside Mortgage
Finance, and may be dierent from other data sources. A firm is classified as using a subservicer if it is not listed in
the Inside Mortgage Finance “Primary Servicer” table. A firm is classified as providing subservicing if it is listed in the
Inside Mortgage Finance “Top Residential Subservicers” table. Sums may not fully match due to rounding.
Source: Inside Mortgage Finance
2 MORTGAGE SERVICERS | 11
FSOC Report on Nonbank Mortgage Servicing
e data in Table 1 show that nonbank mortgage servicers are among the largest Agency servicers.
NMCs are seven of the 10 largest Agency servicers and 13 of the largest 20 Agency servicers. In
total, the top 20 Agency servicers hold the servicing rights on nearly $6.3 trillion in unpaid balances
on mortgages in Agency pools, approximately 70 percent of the total Agency market. Nonbank
mortgage servicers in the top 20 hold the servicing rights on $4.3 trillion, or almost half, of the total
Agency market.
Table 1 and related data also indicate that many NMCs have large servicing portfolios. In total, 20
NMCs had servicing portfolios with unpaid principal balances in excess of $50 billion in the fourth
quarter of 2023, which is the Agency threshold at which more stringent expanded requirements
take eect.
19
is total includes seven NMCs in addition to those listed in the top 20.
20
Despite the
dierent operating models, since NMCs have similar vulnerabilities and are susceptible to similar
shocks (see Section 5), stress in the mortgage market may be more likely to simultaneously put
multiple NMCs at risk of failure. e failure of several mid-sized servicers could be as disruptive as
the failure of a large servicer.
To provide perspective on how large subservicers can be, Table 2 shows the ten largest subservicers
as ranked by Inside Mortgage Finance. A subservicer is classied as a “subservicer only” if it is
not listed in the Inside Mortgage Finance “Top 100 Firms in Owned Mortgage Servicing” table.
Seven NMCs are among the top 10 residential subservicers, and some of these rms handle very
large balances. Dovenmuehle and Mr. Cooper, for example, have subservicing responsibilities for
portfolios exceeding $400 billion in unpaid principal balances.
19 e Enterprises and Ginnie Mae require a nonbank servicer to meet additional requirements if it holds the servicing
rights on more than $50 billion in unpaid single-family mortgage balances. FHFA. “Fact Sheet: Enterprise Seller/
Servicer Minimum Financial Eligibility requirements.” Washington, D.C.: FHFA, August 17, 2022. https://www.fhfa.
gov/Media/PublicAairs/Documents/Fact-Sheet-Enterprise-Seller-Servicer-Min-Financial-Eligibility-Requirements.
pdf.
20
In addition to the NMCs shown in Table 1, Planet Home Lending, Crosscountry Mortgage, Guild Mortgage Company,
Amerihome Mortgage Company, New American Funding/Broker Solutions, Movement Mortgage, and Provident
Funding Associates had Agency servicing UPBs in excess of $50 billion as of the fourth quarter of 2023 according to
Inside Mortgage Finance. Amerihome is a nonbank subsidiary of Western Alliance Bank.
2 MORTGAGE SERVICERS12 |
FSOC Report on Nonbank Mortgage Servicing
Tables 1 and 2 also indicate that servicing and subservicing relationships create considerable
linkages across rms and across the bank and NMC sectors, which is further discussed in Section
5.6. As shown in Table 1, ve of the 20 largest Agency servicers rely on subservicers to handle their
administrative servicing duties, while six of the 20 largest Agency servicers subservice loans for
others. NMCs can use multiple subservicers and can share these subservicers with other NMCs and
banks; subservicers can have many clients.
In summary, the organization of the servicing industry means that nancial strains at both servicers
and subservicers can pose challenges to the Agencies. Servicers provide cash outlays required under
the servicing contract, and both servicers and subservicers perform the critical functions associated
with loan administration. Since some subservicers handle servicing functions for many companies,
vulnerabilities at these subservicers could result in stress being transmitted in the system more
broadly (see Section 6.3). e similarities in NMC business models mean that multiple servicers
could fall into material distress at the same time, which could require the Agencies to manage
several failures at once and could make it challenging to nd new rms to take on the portfolios of
failing NMCs. Some NMC portfolios can be sizeable, and moving these portfolios to a new servicer
can be dicult.
Table 2: Top Residential Mortgage Subservicers, Q4 2023
Firm Type Rank Subservicer Balance
(in $ Billions)
Market Share
(Percent)
Subservicer
Only
Cenlar Bank 1 875.0 21.9 Ye s
Dovenmuehle Nonbank 2 515.0 12.9 Ye s
Mr. Cooper Nonbank 3 403.8 10.1 No
LoanCare Nonbank 4 320.0 8.0 Ye s
Flagstar Bank 5 294.9 7.4 No
ServiceMac Nonbank 6 245.2 6.1 Ye s
Ocwen Financial/PHH
Mortgage
Nonbank 7 139.9 3.5 No
Select Portfolio Servicing Nonbank 8 133.0 3.3 Ye s
M&T Bank Bank 9 115.1 2.9 No
New Rez/Caliber/Shellpoint Nonbank 10 102.5 2.6 No
Estimated Subservicing
Market Total
3,990.0
Note: Estimates include loans held for investment on bank books and loans in private-label securitizations as well as
loans in Agency pools.
Source: Inside Mortgage Finance
3 THE GROWTH IN AGENCY SECURITIZATION AND NONBANK MORTGAGE COMPANIES | 13
FSOC Report on Nonbank Mortgage Servicing
3 The Growth in Agency Securitization and Nonbank
Mortgage Companies
In the last 30 years, the types of institutions that originate, fund, securitize, and service mortgages
have shifted signicantly. In particular, the share of mortgages originated or serviced by an NMC
and securitized into an MBS guaranteed by the Agencies has increased dramatically, especially since
the 2007-09 nancial crisis. ese trends, combined with the government’s nancial support for the
Enterprises during their ongoing conservatorships, mean that the government’s aggregate exposure
to the fragilities of NMCs has increased substantially.
3.1 Increased Government and Enterprise Backing of the Mortgage Market
e share of outstanding mortgages with a government or Enterprise guarantee has increased since
the 2007-09 nancial crisis. e guarantee takes two forms for investors: protection against credit
losses on the underlying mortgages (“credit” guarantee) and guarantees to receive timely payment of
principal and interest on the securitizations that fund the mortgages (“timely payment” guarantee).
For Ginnie Mae securitizations, Ginnie Mae provides the timely payment guarantee on the security
while the credit insurance or guarantee on the loans is provided by the FHA, VA, RHS, or PIH.
For Enterprise securitizations, the Enterprises provide both the credit and timely payment
guarantees. e Enterprise guarantee is not directly backed by the federal government. In
conjunction with FHFA placing each Enterprise into conservatorship in 2008, the U.S. Department
of the Treasury began providing Fannie Mae and Freddie Mac with nancial support through the
Senior Preferred Stock Purchase Agreements (SPSPAs), which were executed on September 7,
2008.
21
e SPSPAs, which remain in place, were designed to provide stability to nancial markets
and prevent disruptions in the availability of mortgage nance. However, even in conservatorship,
Fannie Mae and Freddie Mac operate as private market participants.
21 FHFA. “Senior Preferred Stock Purchase Agreements.” Washington, D.C.: FHFA, October 17, 2022. https://www.fhfa.
gov/Conservatorship/Pages/Senior-Preferred-Stock-Purchase-Agreements.aspx.
3 THE GROWTH IN AGENCY SECURITIZATION AND NONBANK MORTGAGE COMPANIES 14 |
FSOC Report on Nonbank Mortgage Servicing
On net, the share of outstanding mortgages funded by Agency securitization rose from 46 percent in
1990 to 68 percent in 2023 (see Figure 2).
22
is upward trend was interrupted in the 2000s as the
emergence of subprime and near-prime mortgage products led to a surge in the private-label
securitization (PLS) market. After the PLS market imploded in 2007, the Agency share expanded
again, led initially by a sharp rise in Ginnie Mae guaranteed securitizations as the FHA, VA, and RHS
programs absorbed some of the origination activity that was funded earlier through PLS (see Figure
3).
23
Increases in the maximum loan size eligible for FHA insurance and VA guarantees also
contributed to the growth.
24
22 Data are from the Financial Accounts of the United States, Table L.218. Data are for residential mortgages
collateralized by one-to-four family properties. Home equity loans are excluded from the calculation. Credit unions
are included in the depository category. Data for the Ginnie Mae component of Agency and MBS pools in the Flow
of Funds Account can be found at https://www.ginniemae.gov/data_and_reports/reporting/Pages/monthly_rpb_
reports.aspx.
23 See Adelino, Manuel, William B. McCartney, and Antionette Schoar. “e Role of Government and Private Institutions
in Credit Cycles in the U.S. Mortgage Market.” Working Paper no. 27499. NBER, July 2020. https://www.nber.org/
papers/w27499 for more discussion of this switch.
24 For more information on the increases in the maximum loan amount eligible for FHA insurance, see Park, Kevin A.,
“Temporary Loan Limits as a Natural Experiment in FHA Insurance,” Working Paper no. HF-021, Washington, D.C.:
HUD Oce of Policy Development and Research, May 2016. https://www.huduser.gov/portal/sites/default/les/
pdf/WhitePaper-FHA-Loan-Limits.pdf. See also Veterans Benets Administration. “Updated Guidance for Blue Water
Navy Vietnam Veterans Act of 2019.” Circular 26-19-30, Washington, D.C.: Department of Veterans Aairs, November
15, 2019. https://www.benets.va.gov/HOMELOANS/documents/circulars/26_19_30.pdf for increases in the
maximum amount of VA guaranty entitlement resulting from the Blue Water Navy Vietnam Veterans Act of 2019.
Note: One-to-four family residential mortgages excluding home equity loans. Credit unions
are included in the depository category.
Source: Financial Accounts of the United States
Figure 2: Outstanding Mortgage Balances by Sector
Source: Federal Financial Institutions Examination Council (U.S.), Home Mortgage
Disclosure Act (Public Data)
Figure 3: Loan Origination by Credit Guarantor
3 THE GROWTH IN AGENCY SECURITIZATION AND NONBANK MORTGAGE COMPANIES | 15
FSOC Report on Nonbank Mortgage Servicing
3.2 Increased NMC Presence in the Mortgage Market
e bank share of mortgage origination and servicing rose substantially at the beginning of the 2007-
09 nancial crisis after many NMCs failed amid a sharp rise in delinquencies and unemployment,
decline in house prices, and collapse of the subprime and Alternative-A securitization market.
Altogether, the total number of NMCs (both independent and bank-aliated) fell by half—a drop
of nearly 1,000 companies—between 2006 and 2012.
25
Some very large NMCs failed, such as New
Century Financial and American Home Mortgage, which received nearly 450,000 and 350,000
mortgage applications, respectively, in 2006.
26
e origination and servicing businesses of New
Century Financial and American Home Mortgage included signicant exposure to mortgages that
were not eligible for Agency securitization.
27
While many of the factors that contributed to NMC failures during the 2007-09 nancial crisis are
signicantly dierent or nonexistent today, it is worth examining similarities in vulnerabilities
given the large market share and reliance on NMCs in today’s market. e NMCs from the pre-
nancial crisis period originated and serviced many subprime and near-prime mortgages that
were poorly underwritten and had opaque and confusing features such as teaser interest rates and
negative amortization.
28
State and federal regulations since the 2007-09 crisis have dramatically
25 Bhutta, Neil, and Glenn B. Canner. 2013. “Mortgage Market Conditions and Borrower Outcomes: Evidence from the
2012 HMDA Data and Matched HMDA–Credit Record Data.” Federal Reserve Bulletin 99, no. 4 (November). https://
www.federalreserve.gov/pubs/bulletin/2013/pdf/2012_hmda.pdf.
26 Applications for 2006 can be found at https://www.federalreserve.gov/pubs/bulletin/2008/pdf/hmda07tableA1.xls.
27 See these companies’ SEC lings, available for American Home Mortgage at https://www.sec.gov/Archives/edgar/
data/1256536/000119312507044477/d10k.htm and for New Century Financial at https://www.sec.gov/Archives/
edgar/data/1287286/000089256906001359/a24944e10vq.htm.
28 For a discussion of the deterioration in underwriting standards, see Mayer, Christopher, Karen Pence, and Shane M.
Sherlund. 2009. “e Rise in Mortgage Defaults,” Journal of Economic Perspectives, 23, no. 1 (Winter): 27-50. See the
Housing Credit Availability Index in Urban Institute Housing Finance Policy Center. “Housing Finance at a Glance:
A Monthly Chartbook.” Washington, D.C.: Urban Institute, March 2024. https://www.urban.org/sites/default/
les/2024-03/Housing_Finance_At_A_Glance_Monthly_Chartbook_March_2024.pdf, for a measure of the role of
product risk in mortgage default risk before the 2007-09 nancial crisis.
On net, the share of outstanding mortgages funded by Agency securitization rose from 46 percent in
1990 to 68 percent in 2023 (see Figure 2).
22
is upward trend was interrupted in the 2000s as the
emergence of subprime and near-prime mortgage products led to a surge in the private-label
securitization (PLS) market. After the PLS market imploded in 2007, the Agency share expanded
again, led initially by a sharp rise in Ginnie Mae guaranteed securitizations as the FHA, VA, and RHS
programs absorbed some of the origination activity that was funded earlier through PLS (see Figure
3).
23
Increases in the maximum loan size eligible for FHA insurance and VA guarantees also
contributed to the growth.
24
22 Data are from the Financial Accounts of the United States, Table L.218. Data are for residential mortgages
collateralized by one-to-four family properties. Home equity loans are excluded from the calculation. Credit unions
are included in the depository category. Data for the Ginnie Mae component of Agency and MBS pools in the Flow
of Funds Account can be found at https://www.ginniemae.gov/data_and_reports/reporting/Pages/monthly_rpb_
reports.aspx.
23
See Adelino, Manuel, William B. McCartney, and Antionette Schoar. “e Role of Government and Private Institutions
in Credit Cycles in the U.S. Mortgage Market.” Working Paper no. 27499. NBER, July 2020. https://www.nber.org/
papers/w27499 for more discussion of this switch.
24 For more information on the increases in the maximum loan amount eligible for FHA insurance, see Park, Kevin A.,
“Temporary Loan Limits as a Natural Experiment in FHA Insurance,” Working Paper no. HF-021, Washington, D.C.:
HUD Oce of Policy Development and Research, May 2016. https://www.huduser.gov/portal/sites/default/les/
pdf/WhitePaper-FHA-Loan-Limits.pdf. See also Veterans Benets Administration. “Updated Guidance for Blue Water
Navy Vietnam Veterans Act of 2019.” Circular 26-19-30, Washington, D.C.: Department of Veterans Aairs, November
15, 2019. https://www.benets.va.gov/HOMELOANS/documents/circulars/26_19_30.pdf for increases in the
maximum amount of VA guaranty entitlement resulting from the Blue Water Navy Vietnam Veterans Act of 2019.
Note: One-to-four family residential mortgages excluding home equity loans. Credit unions
are included in the depository category.
Source: Financial Accounts of the United States
Figure 2: Outstanding Mortgage Balances by Sector
Source: Federal Financial Institutions Examination Council (U.S.), Home Mortgage
Disclosure Act (Public Data)
Figure 3: Loan Origination by Credit Guarantor
3 THE GROWTH IN AGENCY SECURITIZATION AND NONBANK MORTGAGE COMPANIES 16 |
FSOC Report on Nonbank Mortgage Servicing
improved underwriting standards and restricted or eliminated the use of these product features.
29
NMCs were also heavily dependent on private-label securitization and whole loan sales, which are
less stable funding sources than Agency securitization markets in periods of stress. Today NMCs
focus primarily on Agency securitization. Despite these improvements to the product and market
environment, NMCs in the period before the 2007-09 crisis had liquidity and leverage vulnerabilities
similar to those of NMCs active today, and those vulnerabilities contributed to their demise when
confronted with the market shocks of that era.
30
e NMCs with the largest market share today are
also almost entirely independent, whereas a large share of the NMCs in the period before the 2007-
09 crisis were aliated with a bank holding company and subject to regulation and supervision
from federal and state banking regulators.
In the years after the 2007-09 nancial crisis, banks pulled back from mortgage origination and
servicing in part due to heightened regulation and sensitivity to the cost and uncertainty associated
with delinquent mortgages. On the regulatory front, the revised capital rule issued by the banking
agencies in 2013 imposed stricter capital requirements on MSRs.
31
is rule made mortgage
servicing a less attractive business line for some banks.
32
To the extent that the obligation to service
a mortgage arises from mortgage origination, the revised capital treatment may have dampened
banks’ desires to originate some types of mortgages.
33
Banks perceived an increase in the cost and
uncertainty of default servicing because of developments such as the National Mortgage Settlement,
the Independent Foreclosure Review, prosecutions under the False Claims Act, and private
litigation.
34
While the costs of default servicing rose for both banks and NMCs, banks appeared
to respond more strongly than NMCs to these developments and reduced their exposure from
originating and servicing mortgages to borrowers with a higher risk of default.
NMCs also appear to have gained market share in mortgage originations after the 2007-09 nancial
crisis because they were quicker to embrace new technology that made the mortgage origination
29 CFPB. “Consumer Financial Protection Bureau Publishes Assessments of Ability-to-Repay and Mortgage Servicing
Rules.” Washington, D.C.: CFPB, January 10, 2019. https://www.consumernance.gov/about-us/newsroom/
consumer-nancial-protection-bureau-publishes-assessments-ability-repay-and-mortgage-servicing-rules/. McCoy,
Patricia A and Susan M. Wachter. 2020. “Why the Ability-to-Repay Rule Is Vital to Financial Stability.” Georgetown Law
Journal 108, no. 3 (March 2020): 649-698. https://www.law.georgetown.edu/georgetown-law-journal/wp-content/
uploads/sites/26/2020/03/Why-the-Ability-to-Repay-Rule-Is-Vital-to-Financial-Stability.pdf.
30 For examples, see Dash, Eric. 2007. “American Home Mortgage Says It Will Close,” New York Times (August 3, 2007)
https://www.nytimes.com/2007/08/03/business/03lender.html and the discussion in Kim, You Suk, Steven Laufer,
Karen Pence, Richard Stanton, and Nancy Wallace. 2018. “Liquidity Crises in the Mortgage Market,” Brookings Papers
on Economic Activity (Spring 2018): 347-428. https://www.brookings.edu/wp-content/uploads/2018/03/KimEtAl_
Text.pdf.
31 See Federal Reserve Board, FDIC, OCC, NCUA. “Report to the Congress on the Eects of Capital Rules on
Mortgage Servicing Assets,” Washington, D.C.: Federal Reserve Board, FDIC, OCC, NCUA, June 2016. https://www.
federalreserve.gov/publications/other-reports/les/eect-capital-rules-mortgage-servicing-assets-201606.pdf.
32 For some banks, the change in risk weights on MSRs was a relatively small increase from 215 percent to 250 percent.
See ibid.
33 e capital treatment only aects mortgages that are funded through securitization. No MSR is created for a mortgage
held in a bank’s portfolio.
34 See “Joint State-Federal National Mortgage Servicing Settlements.” Joint State-Federal National Mortgage Servicing
Settlements. http://www.nationalmortgagesettlement.com/; Federal Reserve Board. “Independent Foreclosure
Review.” Federal Reserve Board (July 21, 2014). https://www.federalreserve.gov/publications/2014-independent-
foreclosure-review-background-on-the-independent-foreclosure-review.htm, and U.S. Department of Justice “e
False Claims Act & Federal Housing Administration Lending.” U.S. Department of Justice (March 15, 2016). https://
www.justice.gov/archives/opa/blog/false-claims-act-federal-housing-administration-lending.
3 THE GROWTH IN AGENCY SECURITIZATION AND NONBANK MORTGAGE COMPANIES | 17
FSOC Report on Nonbank Mortgage Servicing
process faster and more convenient for some borrowers.
35
In addition, NMCs pivoted quicker than
banks after the 2007-09 nancial crisis to develop the expertise to service nonperforming loans. e
extraordinary need for such servicing expertise in the aftermath of the 2007-09 nancial crisis also
helped fuel the growth of some NMCs.
36
e next section describes how this broad shift from banks to NMCs unfolded in dierent parts of
the mortgage market.
3.2.1 Increased NMC Share of Mortgage Originations
From 1993 to 2006, the mortgage origination market was split roughly evenly among banks, NMCs
aliated with banks or bank holding companies, and independent NMCs (see Figure 4).
37
Both
bank-aliated and independent NMCs lost market share to banks during the 2007-09 nancial
crisis. After the crisis, bank-aliated NMCs mostly closed their operations, while independent
NMCs expanded and banks contracted. By 2022, 64 percent of purchase mortgages were originated
by independent NMCs.
35 See Buchak, Greg, Gregor Matvos, Tomasz Piskorski, and Amit Seru. 2018. “Fintech, Regulatory Arbitrage, and the Rise
of Shadow Banks.” Journal of Financial Economics 130, issue 3: 453-483, and Fuster, Andreas, Matthew Plosser, Philipp
Schnabl, and James Vickery. 2019. “e Role of Technology in Mortgage Lending,” Review of Financial Studies 32,
issue 5: 1854-1899. https://doi.org/10.1093/rfs/hhz018.
36 See Federal Reserve Board, FDIC, OCC, NCUA. “Report to the Congress on the Eect of Capital Rules on Mortgage
Servicing Assets.” Washington, D.C.: Federal Reserve Board, FDIC, OCC, NCUA, June 2016. https://www.
federalreserve.gov/publications/other-reports/les/eect-capital-rules-mortgage-servicing-assets-201606.pdf.
37 All statistics in this section are calculated from HMDA data as described in footnote 4. e data series begin in 1993
because HMDA’s coverage of independent NMCs increased in 1993.
Note: Depositories include credit unions. Independent refers to nonbank mortgage
companies. Aliated refers to nonbank mortgage companies aliated with a depository
institution.
Source: Federal Financial Institutions Examination Council (U.S.), Home Mortgage
Disclosure Act (Public Data)
Figure 4: Loan Origination by Type of Originator
3 THE GROWTH IN AGENCY SECURITIZATION AND NONBANK MORTGAGE COMPANIES 18 |
FSOC Report on Nonbank Mortgage Servicing
3.2.2 Increased NMC Share as Agency Counterparties
NMCs have a strong incentive to sell their originations quickly because secondary market sales are a
signicant source of income, and they lack aordable or reliable sources of long-term funding. e
Agencies’ dominant securitization market share means that they are the major source of secondary
market liquidity for NMCs. Some NMCs engage directly with the Agencies to sell or securitize their
loans, whereas others sell their loans to larger banks or NMCs, known as “aggregators,” that engage
with the Agencies.
An originator that funds mortgages through a securitization guaranteed by an Enterprise can
either sell the loans to the Enterprise for cash or exchange the loans for an MBS guaranteed by the
Enterprise. e originator can choose to retain the servicing or release it to be serviced by another
rm. Originators that sell loans to or service loans for an Enterprise are referred to as Enterprise
seller/servicers.
If the originator decides to fund mortgages by issuing a securitization guaranteed by Ginnie
Mae, the originator receives a guaranty on the MBS and retains the servicing unless it transfers
issuer responsibilities through the Pools Issued for Immediate Transfer program. Originators that
issue securitizations guaranteed by Ginnie Mae are referred to as Ginnie Mae issuers. is report
collectively refers to Enterprise seller/servicers and Ginnie Mae issuers as Agency counterparties.
Agency counterparties assume certain responsibilities. For example, if the loan was not
underwritten in accordance with the policies or guidelines of the respective Agency, the Enterprises
or the U.S. government (FHA, VA, or RHS) can pursue the seller for damages or require repurchase
of the loan. Originators that retain the servicing for the loans sold or securitized via the Agencies
must agree to service the loans in accordance with the respective Agency guidelines.
Although NMCs have always originated loans, until the 2010s most nonbank originators were too
small to handle the responsibilities of being an Agency servicing counterparty in a cost-eective
way. Instead, they sold their originations to bank or NMC aggregators. In 2008, independent NMCs
were the sellers for only 10 percent of mortgages in Enterprise securitizations and the issuers for 14
percent of mortgages in Ginnie Mae securitizations (see Figure 5). After the 2007-09 nancial crisis,
some large banks withdrew from the Agency counterparty role for the reasons noted in Section 3.2
and some independent NMCs responded to this market opportunity by expanding their operations
and becoming Agency counterparties. By 2022, independent NMCs were the sellers for 66 percent of
mortgages in Enterprise securitizations and the issuers for 84 percent of mortgages for Ginnie Mae
securitizations.
38
38 is paragraph focuses solely on independent NMCs because they may pose more counterparty risk to the Agencies
than bank-aliated NMCs. Banks and bank holding companies are subject to federal and state supervision and
regulation.
Note: The figure shows the market share for independent NMCs that sold originations to
the Enterprises or issued a securitization guaranteed by Ginnie Mae. In some cases that
NMC was the mortgage originator and in some cases it was a mortgage aggregator.
Source: Federal Financial Institutions Examination Council (U.S.), Home Mortgage
Disclosure Act (Public Data)
Figure 5: Share of Originations in Agency Pools Contributed by
Independent NMCs
3 THE GROWTH IN AGENCY SECURITIZATION AND NONBANK MORTGAGE COMPANIES | 19
FSOC Report on Nonbank Mortgage Servicing
3.2.2 Increased NMC Share as Agency Counterparties
NMCs have a strong incentive to sell their originations quickly because secondary market sales are a
signicant source of income, and they lack aordable or reliable sources of long-term funding. e
Agencies’ dominant securitization market share means that they are the major source of secondary
market liquidity for NMCs. Some NMCs engage directly with the Agencies to sell or securitize their
loans, whereas others sell their loans to larger banks or NMCs, known as “aggregators,” that engage
with the Agencies.
An originator that funds mortgages through a securitization guaranteed by an Enterprise can
either sell the loans to the Enterprise for cash or exchange the loans for an MBS guaranteed by the
Enterprise. e originator can choose to retain the servicing or release it to be serviced by another
rm. Originators that sell loans to or service loans for an Enterprise are referred to as Enterprise
seller/servicers.
If the originator decides to fund mortgages by issuing a securitization guaranteed by Ginnie
Mae, the originator receives a guaranty on the MBS and retains the servicing unless it transfers
issuer responsibilities through the Pools Issued for Immediate Transfer program. Originators that
issue securitizations guaranteed by Ginnie Mae are referred to as Ginnie Mae issuers. is report
collectively refers to Enterprise seller/servicers and Ginnie Mae issuers as Agency counterparties.
Agency counterparties assume certain responsibilities. For example, if the loan was not
underwritten in accordance with the policies or guidelines of the respective Agency, the Enterprises
or the U.S. government (FHA, VA, or RHS) can pursue the seller for damages or require repurchase
of the loan. Originators that retain the servicing for the loans sold or securitized via the Agencies
must agree to service the loans in accordance with the respective Agency guidelines.
Although NMCs have always originated loans, until the 2010s most nonbank originators were too
small to handle the responsibilities of being an Agency servicing counterparty in a cost-eective
way. Instead, they sold their originations to bank or NMC aggregators. In 2008, independent NMCs
were the sellers for only 10 percent of mortgages in Enterprise securitizations and the issuers for 14
percent of mortgages in Ginnie Mae securitizations (see Figure 5). After the 2007-09 nancial crisis,
some large banks withdrew from the Agency counterparty role for the reasons noted in Section 3.2
and some independent NMCs responded to this market opportunity by expanding their operations
and becoming Agency counterparties. By 2022, independent NMCs were the sellers for 66 percent of
mortgages in Enterprise securitizations and the issuers for 84 percent of mortgages for Ginnie Mae
securitizations.
38
38 is paragraph focuses solely on independent NMCs because they may pose more counterparty risk to the Agencies
than bank-aliated NMCs. Banks and bank holding companies are subject to federal and state supervision and
regulation.
Note: The figure shows the market share for independent NMCs that sold originations to
the Enterprises or issued a securitization guaranteed by Ginnie Mae. In some cases that
NMC was the mortgage originator and in some cases it was a mortgage aggregator.
Source: Federal Financial Institutions Examination Council (U.S.), Home Mortgage
Disclosure Act (Public Data)
Figure 5: Share of Originations in Agency Pools Contributed by
Independent NMCs
Nonbank rms also expanded their role as Agency servicers (see Figure 6). For the Enterprises,
dierent rms may serve as the seller and servicer of a loan, whereas for Ginnie Mae the functions
are combined. e share of loans serviced by nonbank mortgage servicers for the Enterprises rose
from 35 percent in 2014 to 60 percent in 2023, while the share for Ginnie Mae rose from 34 percent to
83 percent during the same period.
39
39 Statistics calculated starting in 2014 because eMBS data are incomplete in earlier years.
Source: Black Knight eMBS
Figure 6: NMC Share of Agency Servicing
3 THE GROWTH IN AGENCY SECURITIZATION AND NONBANK MORTGAGE COMPANIES 20 |
FSOC Report on Nonbank Mortgage Servicing
3.3 Increased Aggregate Mortgage Market Exposure to Agency
Securitization and NMCs
As a result of the increased Agency securitization and NMC market share, the aggregate mortgage
market exposure to Agency securitizations with nonbank mortgage servicers has risen dramatically
over time. From 2014 to 2023, the share of all mortgages outstanding that were serviced by NMCs
and had an Agency guarantee grew from 26 percent to 44 percent.
40
In total, the Agency nonbank
mortgage servicer exposure was approximately $6 trillion at the end of 2023.
40 Estimates are for closed-end, one- to four-family residential mortgages and based on data from the Financial
Accounts of the United States and eMBS.
4 STRENGTHS OF NONBANK MORTGAGE COMPANIES | 21
FSOC Report on Nonbank Mortgage Servicing
4 Strengths of Nonbank Mortgage Companies
In some circumstances, NMCs appear to have been more entrepreneurial in their marketing and
market expansion than banks. ey are generally thought to have been quicker to partner with
nancial technology (ntech) companies and leverage their technologies, especially for mortgage
origination activities.
41
In addition, because NMCs focus solely on mortgage-related products, they
may have a greater incentive than banks to adjust their operations when market conditions change.
When interest rates fall and there is greater demand for mortgages, nonbank originators may scale
quicker than banks to meet the surge in demand. In 2020, nonbank originators increased their
market share by four percentage points when mortgage interest rates fell sharply amid the policy
response to the COVID-19 pandemic.
42
As another example, in the aftermath of the 2007-09 nancial
crisis, when a large share of mortgages was delinquent or in foreclosure, some nonbank mortgage
servicers developed greater experience in handling the servicing of distressed mortgages.
43
NMCs have also developed substantial operational capacity, as evidenced by the large market share
that they originate and service. eir origination and servicing platforms are important parts of
the mortgage infrastructure, especially for historically underserved borrowers.
44
NMCs originated
72 percent and 75 percent, respectively, of mortgages extended to Black and Hispanic borrowers
in 2022, and 61 percent of those to Asian and White borrowers; the higher NMC share for Black
and Hispanic borrowers has persisted for at least 30 years (see Figure 7).
45
A similar, albeit smaller,
gap is apparent by income. In 2022, NMCs originated 67 percent of mortgages extended to low-
to-moderate income borrowers and 64 percent of mortgages extended to borrowers with higher
incomes (see Figure 8).
41 See Buchak, Greg, Gregor Matvos, Tomasz Piskorski, and Amit Seru. 2018. “Fintech, Regulatory Arbitrage, and the Rise
of Shadow Banks.” Journal of Financial Economics 130, issue 3: 453-483, and Fuster, Andreas, Matthew Plosser, Philipp
Schnabl, and James Vickery. 2019. “e Role of Technology in Mortgage Lending,” Review of Financial Studies 32,
issue 5: 1854-1899. https://doi.org/10.1093/rfs/hhz018.
42 Calculation is from HMDA data as described in footnote 4. See Fuster, Andreas, Aurel Hizmo, Lauren Lambie-Hanson,
James Vickery, and Paul Willen. “How Resilient is Mortgage Credit Supply? Evidence from the COVID-19 Pandemic.”
Washington, D.C.: Federal Reserve Board, July 2021. https://www.federalreserve.gov/econres/feds/how-resilient-is-
mortgage-credit-supply-evidence-from-the-covid-19-pandemic.htm for a discussion of how NMCs’ ntech platforms
may have helped them expand quicker.
43 See Lee, Pamela. “Nonbank Specialty Servicers: What’s the Big Deal?” Washington, D.C.: Urban Institute Housing
Finance Policy Center, August 4, 2014. https://www.urban.org/sites/default/les/publication/22831/413198-
Nonbank-Specialty-Servicers-What-s-the-Big-Deal-.PDF.
44 12 U.S.C. 5330(a). Congress directed the Council to specically consider the nancial stability consequences for low-
income, minority, or underserved communities.
45 Data are from HMDA as described in footnote 4.
4 STRENGTHS OF NONBANK MORTGAGE COMPANIES 22 |
FSOC Report on Nonbank Mortgage Servicing
Note: NMCs includes both independent NMCs and NMCs aliated with a banking institu-
tion. Hispanic borrowers can be of any race. White, Asian, and Black borrowers are those
who identify as non-Hispanic.
Source: Federal Financial Institutions Examination Council (U.S.), Home Mortgage
Disclosure Act (Public Data)
Figure 7: NMC Share of Originations by Race or Ethnicity
Note: NMC includes both independent NMCs and NMCs aliated with a banking institu-
tion. A borrower is considered LMI if their income is less than 80 percent of the median
household income in their respective Metropolitan Statistical Area for the year.
Source: Federal Financial Institutions Examination Council (U.S.), Home Mortgage
Disclosure Act (Public Data)
Figure 8: NMC Share of Originations to Low and Moderate Income
(LMI) Borrowers
4 STRENGTHS OF NONBANK MORTGAGE COMPANIES | 23
FSOC Report on Nonbank Mortgage Servicing
NMCs are also more likely to originate mortgages to borrowers with lower credit scores. As of
December 2023, NMCs originated 96 percent of mortgages in Agency pools with borrowers having a
credit score less than 620 and 86 percent of mortgages with borrowers having a credit score below
720 (see Figure 9).
Finally, NMCs attract new sources of capital into the mortgage market, such as private equity
funding. is new capital increases market liquidity but introduces new risks associated with capital
that may have less long-term commitment to the mortgage market. For example, these rms may
be less likely to make long-term investments in infrastructure and may be more likely to respond to
downturns in mortgage-market conditions by exiting their mortgage-related investments and re-
deploying their capital elsewhere.
Note: Statistics calculated over mortgages in Agency pools.
Source: Black Knight eMBS
Figure 9: NMC Share of Agency Originations by FICO Score
5 VULNERABILITIES OF NONBANK MORTGAGE COMPANIES24 |
FSOC Report on Nonbank Mortgage Servicing
5 Vulnerabilities of Nonbank Mortgage Companies
Of the eight categories of vulnerabilities dened in FSOC’s Analytic Framework, NMC vulnerabilities
tend to fall into concerns about liquidity, leverage, operational risk, and interconnections.
46
In
addition, NMCs’ concentrated exposure to mortgage-related assets and services can lead to
signicant swings in protability and a lack of assets to draw upon to absorb shocks. NMC nancing
can quickly become expensive, or even disappear, at times of stress. Despite the vulnerability of their
nancing, some NMCs have highly leveraged business models. As a reection of these factors, credit
rating agencies have generally assessed the debt obligations of NMCs as speculative-grade credits.
Shared funding and subservicing providers can lead to weaknesses at one NMC being transmitted to
others.
5.1 Vulnerability to Macroeconomic Shocks
Since NMCs specialize in mortgage-related assets, their protability can vary dramatically with
changes in the economy that disproportionately aect mortgages. For example, consumer demand
for mortgages varies with house prices, housing supply, and interest rates. When interest rates fall
sharply, more borrowers benet from renancing their xed-rate mortgages, and so mortgage
demand surges. Nonbank originators are typically very protable during these periods because they
process more mortgages and can charge more for their services.
47
As observed in the 2022-23 rising
interest rate cycle, when renancing booms end, originator protability may be adversely aected.
If originators are unable to reduce their expenses in proportion to the decreased demand, they
may even lose money on originations. Since most large nonbank mortgage servicers also originate
mortgages, losses in their origination operations may aect their ability to service loans.
To illustrate this point, Figure 10 shows that on average during the 2009-2022 period, NMCs earned
$1,558 in net production income on each loan origination, expressed in 2022 dollars.
48
However,
when mortgage renancing surged during the pandemic, net production income increased to more
than $4,500 per loan, and then plummeted to a $300 loss per loan in 2022 as both renancing and
purchase transactions decreased. In 2023 (not shown in graph), losses were around $1,000 per loan.
46 Financial Stability Oversight Council. Analytic Framework for Financial Stability Risk Identication, Assessment, and
Response. 88 Fed. Reg. 78026 (Nov. 14, 2023). https://home.treasury.gov/system/les/261/Analytic-Framework-for-
Financial%20Stability-Risk-Identication-Assessment-and-Response.pdf. FSOC’s Analytic Framework describes eight
vulnerabilities that most commonly contribute to risks to nancial stability and four transmission channels that are
most likely to facilitate the transmission of negative eects of a risk to nancial stability. e factors described in the
Analytic Framework are not meant to be exhaustive or exclusive.
47 For evidence that lenders can charge more during periods of peak mortgage demand, see Fuster, Andreas, Stephanie
Lo, and Paul S. Willen. 2023. "e Time-Varying Price of Financial Intermediation in the Mortgage Market." Journal of
Finance, Forthcoming, Available at SSRN:https://ssrn.com/abstract=2902542.
48 Data on net production income are from the Mortgage Bankers Quarterly Performance Report from the Mortgage
Bankers Association and are converted to 2022 dollars using the Personal Consumption Expenditures Price Index.
Loan originations are from HMDA data and include both purchase and renance originations.
Note: Number of originations is the sum of purchase and refinance originations. Net pro-
duction income is adjusted to 2022 dollars.
Sources: Mortgage Bankers Association Quarterly Performance Report (income)
and HMDA (originations)
Figure 10: Net Production Income and Mortgage Originations
5 VULNERABILITIES OF NONBANK MORTGAGE COMPANIES | 25
FSOC Report on Nonbank Mortgage Servicing
5 Vulnerabilities of Nonbank Mortgage Companies
Of the eight categories of vulnerabilities dened in FSOC’s Analytic Framework, NMC vulnerabilities
tend to fall into concerns about liquidity, leverage, operational risk, and interconnections.
46
In
addition, NMCs’ concentrated exposure to mortgage-related assets and services can lead to
signicant swings in protability and a lack of assets to draw upon to absorb shocks. NMC nancing
can quickly become expensive, or even disappear, at times of stress. Despite the vulnerability of their
nancing, some NMCs have highly leveraged business models. As a reection of these factors, credit
rating agencies have generally assessed the debt obligations of NMCs as speculative-grade credits.
Shared funding and subservicing providers can lead to weaknesses at one NMC being transmitted to
others.
5.1 Vulnerability to Macroeconomic Shocks
Since NMCs specialize in mortgage-related assets, their protability can vary dramatically with
changes in the economy that disproportionately aect mortgages. For example, consumer demand
for mortgages varies with house prices, housing supply, and interest rates. When interest rates fall
sharply, more borrowers benet from renancing their xed-rate mortgages, and so mortgage
demand surges. Nonbank originators are typically very protable during these periods because they
process more mortgages and can charge more for their services.
47
As observed in the 2022-23 rising
interest rate cycle, when renancing booms end, originator protability may be adversely aected.
If originators are unable to reduce their expenses in proportion to the decreased demand, they
may even lose money on originations. Since most large nonbank mortgage servicers also originate
mortgages, losses in their origination operations may aect their ability to service loans.
To illustrate this point, Figure 10 shows that on average during the 2009-2022 period, NMCs earned
$1,558 in net production income on each loan origination, expressed in 2022 dollars.
48
However,
when mortgage renancing surged during the pandemic, net production income increased to more
than $4,500 per loan, and then plummeted to a $300 loss per loan in 2022 as both renancing and
purchase transactions decreased. In 2023 (not shown in graph), losses were around $1,000 per loan.
46 Financial Stability Oversight Council. Analytic Framework for Financial Stability Risk Identication, Assessment, and
Response. 88 Fed. Reg. 78026 (Nov. 14, 2023). https://home.treasury.gov/system/les/261/Analytic-Framework-for-
Financial%20Stability-Risk-Identication-Assessment-and-Response.pdf. FSOC’s Analytic Framework describes eight
vulnerabilities that most commonly contribute to risks to nancial stability and four transmission channels that are
most likely to facilitate the transmission of negative eects of a risk to nancial stability. e factors described in the
Analytic Framework are not meant to be exhaustive or exclusive.
47
For evidence that lenders can charge more during periods of peak mortgage demand, see Fuster, Andreas, Stephanie
Lo, and Paul S. Willen. 2023. "e Time-Varying Price of Financial Intermediation in the Mortgage Market." Journal of
Finance, Forthcoming, Available at SSRN:https://ssrn.com/abstract=2902542.
48 Data on net production income are from the Mortgage Bankers Quarterly Performance Report from the Mortgage
Bankers Association and are converted to 2022 dollars using the Personal Consumption Expenditures Price Index.
Loan originations are from HMDA data and include both purchase and renance originations.
Note: Number of originations is the sum of purchase and refinance originations. Net pro-
duction income is adjusted to 2022 dollars.
Sources: Mortgage Bankers Association Quarterly Performance Report (income)
and HMDA (originations)
Figure 10: Net Production Income and Mortgage Originations
Mortgage servicing fees provide a more stable stream of cash than origination income. In addition,
servicers book MSRs as an asset on their balance sheet. MSRs are calculated as the expected future
net revenue received from servicing mortgages in securitized pools. When interest rates rise and
origination income slows, MSR valuations increase because servicers can anticipate receiving
servicing fees for a longer time because of the lower prepayment risk. However, although fair-value
markups are recorded as income on NMC balance sheets, NMCs do not experience improved cash
positions unless the NMC sells the MSRs or is able to borrow more on MSR-secured credit lines.
5 VULNERABILITIES OF NONBANK MORTGAGE COMPANIES26 |
FSOC Report on Nonbank Mortgage Servicing
Even with the partial oset from servicing, NMCs are often unprotable at times of low mortgage
demand (“unprotable” is dened as having negative income in a given quarter). NMCs’
protability varies throughout the year and is typically lowest in the rst and fourth quarters, when
mortgage demand is lower (see Figure 11). NMCs can also be unprotable at other times when
origination income is low. Only 44 percent of NMCs covered by the Mortgage Bankers Quarterly
Performance Report were protable at the end of 2018 and only 29 percent were protable at the
end of 2023.
In contrast, the share of banks that are unprotable is typically much lower because banks have
more diversied business lines and smaller seasonal uctuations. To show this point, “average
protability” is constructed by calculating the share of banks that are protable in each quarter in
the ten-year period from the rst quarter of 2014 to the fourth quarter of 2023 and then calculating
the average of these quarterly shares. e calculation is repeated for one- to four-family “mortgage-
lender” banks with more than half of their assets in mortgages and MBS and for NMCs. e average
protability was 94 percent for banks for this ten-year period, 88 percent for mortgage-lender
banks, and 73 percent for NMCs.
49
For NMCs, the average encompasses some quarters when only a
minority of NMCs were protable.
Figure 12 shows the volatility of NMC protability by plotting the annualized return on equity (ROE)
for NMCs, banks, and mortgage-focused banks. From 2015 to 2023, ROE for NMCs ranged from a
high of 96 percent in the third quarter of 2020 to a low of –7.3 percent in the fourth quarter of 2023,
which is in line with the swings in protability. For banks overall, ROE ranged from a high of 14.4
percent in the rst quarter of 2023 to a low of 3.5 percent in the second quarter of 2020; while for
49 Bank statistics are calculated from the FDIC Quarterly Banking Prole and cover all FDIC-insured institutions.
e FDIC identies 326 banks and savings institutions as mortgage lenders. NMC statistics are calculated from the
Mortgage Bankers Quarterly Performance Report and cover roughly 300 NMCs in each quarter.
Note: Profitability defined as positive pretax income in a given quarter for NMCs and
positive after-tax income for banks. A mortgage-lender bank is a bank with residential mort-
gage loans and MBS in excess of 50 percent of total assets.
Sources: For NMCs, Mortgage Bankers Association Quarterly Performance Report.
For banks, Federal Deposit Insurance Corporation Quarterly Banking Profile
Figure 11: Share of Firms that are Profitable
Note: Return on equity (ROE) calculated as a weighted average by total equity.
Sources: NMLS Mortgage Call Report, Federal Deposit Insurance Corporation
Quarterly Banking Profile
Figure 12: Annualized Return on Equity
5 VULNERABILITIES OF NONBANK MORTGAGE COMPANIES | 27
FSOC Report on Nonbank Mortgage Servicing
mortgage-lender banks, the range was 16.2 percent in the fourth quarter of 2022 to 1.5 percent in the
rst quarter of 2020.
e protability of servicers can also decline when mortgage delinquencies increase and defaults
rise, which tend to occur when unemployment rates rise or house prices decrease. Protability
declines because servicing fees generally do not vary by whether a loan is performing or delinquent.
e servicing fee is substantially above the average cost to service a performing loan ($160 in the
rst half of 2022) but below the average cost to service a delinquent loan ($1,994 in the rst half
of 2022).
50
Additionally, when borrowers do not make their mortgage payments, the servicer may
need to advance the missed payment amounts to bondholders, insurance companies, and other
stakeholders. Servicers are eventually reimbursed for most of these payments once the delinquency
is cured but servicers must cover the nancing costs in the interim. While servicing fees on the
overall portfolio should be enough to cover the total costs unless delinquencies reach a very high
level, protability will decrease as delinquencies increase.
NMCs are more exposed than banks to defaults because NMCs tend to originate and service loans
to a dierent risk prole of borrowers than banks. As discussed in Section 3, NMCs service most
of the loans in Ginnie Mae securitizations, which include FHA loans that tend to be originated to
borrowers with lower credit scores. Even when considering the Enterprise and Ginnie Mae markets
separately, the average credit score is a bit higher for mortgages serviced by banks than NMCs.
51
As an example of how much servicers’ costs can rise when foreclosures are high, as the share of
mortgages in foreclosure or real estate owned (REO) increased from an average of about 1.9 percent
in 2008 to 4.1 percent in 2010, unreimbursed foreclosure, REO, and other default costs increased
50 Sinnock, Bonnie. 2023. “Distressed servicing costs normalizing after two-year reprieve.” National Mortgage News
(February 24, 2023).
51 See Figures 56 and 57 in https://www.ginniemae.gov/data_and_reports/reporting/Documents/global_market_
analysis_jan24.pdf.
Even with the partial oset from servicing, NMCs are often unprotable at times of low mortgage
demand (“unprotable” is dened as having negative income in a given quarter). NMCs’
protability varies throughout the year and is typically lowest in the rst and fourth quarters, when
mortgage demand is lower (see Figure 11). NMCs can also be unprotable at other times when
origination income is low. Only 44 percent of NMCs covered by the Mortgage Bankers Quarterly
Performance Report were protable at the end of 2018 and only 29 percent were protable at the
end of 2023.
In contrast, the share of banks that are unprotable is typically much lower because banks have
more diversied business lines and smaller seasonal uctuations. To show this point, “average
protability” is constructed by calculating the share of banks that are protable in each quarter in
the ten-year period from the rst quarter of 2014 to the fourth quarter of 2023 and then calculating
the average of these quarterly shares. e calculation is repeated for one- to four-family “mortgage-
lender” banks with more than half of their assets in mortgages and MBS and for NMCs. e average
protability was 94 percent for banks for this ten-year period, 88 percent for mortgage-lender
banks, and 73 percent for NMCs.
49
For NMCs, the average encompasses some quarters when only a
minority of NMCs were protable.
Figure 12 shows the volatility of NMC protability by plotting the annualized return on equity (ROE)
for NMCs, banks, and mortgage-focused banks. From 2015 to 2023, ROE for NMCs ranged from a
high of 96 percent in the third quarter of 2020 to a low of –7.3 percent in the fourth quarter of 2023,
which is in line with the swings in protability. For banks overall, ROE ranged from a high of 14.4
percent in the rst quarter of 2023 to a low of 3.5 percent in the second quarter of 2020; while for
49 Bank statistics are calculated from the FDIC Quarterly Banking Prole and cover all FDIC-insured institutions.
e FDIC identies 326 banks and savings institutions as mortgage lenders. NMC statistics are calculated from the
Mortgage Bankers Quarterly Performance Report and cover roughly 300 NMCs in each quarter.
Note: Profitability defined as positive pretax income in a given quarter for NMCs and
positive after-tax income for banks. A mortgage-lender bank is a bank with residential mort-
gage loans and MBS in excess of 50 percent of total assets.
Sources: For NMCs, Mortgage Bankers Association Quarterly Performance Report.
For banks, Federal Deposit Insurance Corporation Quarterly Banking Profile
Figure 11: Share of Firms that are Profitable
Note: Return on equity (ROE) calculated as a weighted average by total equity.
Sources: NMLS Mortgage Call Report, Federal Deposit Insurance Corporation
Quarterly Banking Profile
Figure 12: Annualized Return on Equity
5 VULNERABILITIES OF NONBANK MORTGAGE COMPANIES28 |
FSOC Report on Nonbank Mortgage Servicing
from $8 per loan in 2008 to $105 per loan in 2012.
52
e $105 represented about a third of the $312
average cost of servicing a loan in 2012. In 2021, when foreclosures were at very low levels, these
foreclosure costs represented just $13 of the $240 average servicing cost.
5.2 Risks Associated with NMC Assets
NMC assets are highly concentrated in mortgage-related assets and their balance sheets are
vulnerable to mortgage-related shocks. In the aggregate, NMCs typically have only about 5 percent
of their assets in unrestricted cash and securities (see Figure 13). Mortgages held for sale, which are
originations that NMCs hold briey on their balance sheets before securitization, total around 30
percent to 50 percent of aggregate assets, depending on the year. Mortgage servicing rights are 10
percent to 30 percent of NMC assets. Other NMC assets largely cannot be monetized. is category
includes certain securitized mortgages that NMCs are required to recognize under accounting
regulations as on-balance sheet assets and are fully oset by existing nancing recognized as on-
balance sheet liabilities, as well as items such as deferred tax assets and miscellaneous advances
and receivables.
MSRs may not hold their value in certain situations, so bank regulators limit the extent to which
MSRs can be included in bank capital.
53
First, MSR valuations are based on models that forecast
how long the servicer can expect to receive the servicing fee. e valuations depend heavily on the
52 Data on foreclosure costs are from https://newslink.mba.org/mba-newslinks/2022/july/mba-newslink-monday-
july-18-2022/mba-chart-of-the-week-july-15-2022-cost-to-service-loans-per-employee/. Data on share of mortgages
in foreclosure or REO are from Black Knight McDash Data.
53 For more background information on MSRs, Federal Reserve Board, FDIC, OCC, and NCUA. “Report to the Congress
on the Eect of Capital Rules on Mortgage Servicing Assets.” Washington D.C.: Federal Reserve Board, FDIC, OCC,
NCUA, June 2016. https://www.federalreserve.gov/publications/other-reports/les/eect-capital-rules-mortgage-
servicing-assets-201606.pdf.
Source: NMLS Mortgage Call Report
Figure 13: Composition of NMC Assets
5 VULNERABILITIES OF NONBANK MORTGAGE COMPANIES | 29
FSOC Report on Nonbank Mortgage Servicing
model’s structure and the model’s assumptions for how the loan will prepay through renancing or
default. As a result, the valuations have considerable uncertainty and subjectivity.
Second, MSR valuations can swing dramatically with interest rate changes. When interest rates
decrease, the probability that borrowers will renance increases, and MSR valuations decline.
Some NMCs partially oset this volatility through hedging, although hedges do not always perform
as anticipated. Over time, the drop in MSR valuations may be oset by an increase in mortgage
origination income. However, that origination income may materialize at a slower pace than the
decline in MSR valuations, and in the interim, NMCs that have borrowed against their MSRs may
face margin calls from their lenders. NMCs that have not hedged eectively will need to nd other
sources of funds to meet the margin calls.
ird, MSR valuations fall when delinquencies rise. If the delinquency rate on a given servicing
portfolio is high enough, there may be no bidders for the MSR. is drop in valuations can be
problematic because NMCs often raise cash by selling MSRs. NMCs generally have a greater need
for cash when delinquencies are high: servicing costs are much higher for delinquent loans and
NMCs may be facing more requests from the Enterprises and other counterparties to repurchase
non-performing loans.
Challenges with MSR valuations and volatility are exacerbated by the concentration of MSRs on
NMC balance sheets. MSRs for some NMCs are signicantly higher than the NMC industry-wide
statistic of 10 percent to 30 percent of assets. By comparison, for banks MSRs were less than 1
percent of assets in the fourth quarter of 2023.
54
5.3 Liquidity Risk
NMCs face considerable liquidity risk from their funding sources and the often-volatile nature of the
assets on their balance sheets. NMCs can experience a variety of liquidity strains, such as margin
calls that require them to post more collateral or cash to support a credit facility when their liquidity
may already be under pressure. NMCs can also experience increases in their borrowing costs and
reductions or cancellation of nancing sources altogether.
NMCs can also face liquidity pressures from their obligations under the mortgage servicing
contracts. ese contracts can require the servicer to advance funds on behalf of the Agencies or a
private-label securitization trust. While servicers are eventually reimbursed for these advances, they
must fund them in the interim, typically through credit facilities, working capital, or a combination
of the two. Because of their dierent funding structures and business models, nonbank servicers
have more diculty and incur more cost than bank servicers in obtaining nancing for these
advances. ese servicing-advance pressures are particularly pronounced for mortgages in Ginnie
Mae pools because of the issues described in section 5.3.2.
5.3.1 Liquidity Risk from Financing Sources
Warehouse lines of credit
NMCs need short-term nancing for their mortgage originations until the mortgages can be
securitized. Without this funding, NMCs cannot originate mortgages. Lining up more-expensive
54 MSR statistic calculated from Reports of Condition and Income (Call Report) data for large and midsize national
banks that report holding MSRs.
5 VULNERABILITIES OF NONBANK MORTGAGE COMPANIES30 |
FSOC Report on Nonbank Mortgage Servicing
long-term nancing for this purpose is not economical because mortgage demand can swing
dramatically and quickly as interest rates change.
e nancing generally comes from “warehouse” lines of credit provided by banks, bank aliates,
and private lenders. ese credit facilities generally have maturities of less than a year and require
the NMC to abide by covenants regarding the NMC’s nancial condition and the collateral nanced
by the facility. e warehouse credit market is large and deep: as of the fourth quarter of 2023 about
235 warehouse lenders extended credit facilities with total borrowing limits of approximately $285
billion.
55
On average, an NMC had warehouse lines from about 9.5 creditors in the fourth quarter
of 2023.
56
However, the depth is somewhat deceptive. Because warehouse lenders have similar
business models and warehouse lines are generally cross-collateralized, meaning that a default
on one line triggers a default on others, at times of stress an NMC’s warehouse lenders are likely to
behave similarly and tighten credit standards—potentially resulting in restricted access to liquidity.
NMC’s reliance on warehouse lines of credit poses multiple liquidity risks. e rst risk is margin
calls. Warehouse lenders typically nance 90 percent to 95 percent of the loan value, and NMCs
fund the rest of the loan with their own cash.
57
If a loan drops in value while being nanced on the
warehouse line, the NMC will need to post more cash collateral. ese margin calls may result in
NMCs facing demands on their cash at a time when the NMCs are already stressed.
e second risk is the run dynamics that can be sparked by the margin calls. Since NMCs have
multiple warehouse lenders, each warehouse lender may worry that other warehouse lenders will
also ask for additional cash collateral and that the NMC might not have sucient cash to meet all
the demands. is dynamic could lead warehouse lenders to quickly enforce covenants and impose
higher margin requirements during periods of heightened volatility or strain, which may place
additional strain on NMCs.
e third risk is that warehouse lenders may reprice or restructure the lines, for example by raising
interest rates, changing the types of acceptable mortgage collateral, or curtailing or canceling the
lines altogether. An estimated 55 percent of the lines were uncommitted in the fourth quarter of
2023, meaning that the warehouse lenders can reprice the lines at any time. For the remaining 45
percent, the warehouse lenders can only reprice the lines when the lines roll over or if the NMCs
are not in compliance with loan covenants.
58
In times of strain, NMCs are often in violation of
the covenants. In normal market conditions, warehouse lenders generally provide exibility on
covenant violations, especially if the NMC cures the covenant violation within a certain number of
days.
59
At times of systemic stress, warehouse lenders may seek to limit their exposure to NMCs and
may exercise their options to reprice or restructure the lines.
55 Ginnie Mae tabulation of data from the MBFRF. All MBFRF statistics provided by Ginnie Mae in this report are limited
to entities that led the MBFRF in the fourth quarter of 2023 and originated residential one-to-four family property
mortgages, serviced such mortgages, or owned MSRs.
56 Sta calculation from the NMLS Mortgage Call Report. Average is weighted by NMC origination volume.
57 Moody’s assumes that warehouse lenders lend around 93 percent of the loan value. See Moody’s Ratings. “Non-bank
Mortgage Finance Companies – U.S: Q4 2023 Update: Core protability decline with seasonal drop in originations.”
New York, NY: Moody’s Ratings, March 26, 2024.
58 Estimate is weighted by the facility credit limit and is based on the subset of MBFRF respondents that reported the
breakdown between committed and uncommitted lines. e warehouse credit facilities for this subset of respondents
had an aggregate limit of $186 billion.
59 Ivey, Brandon. 2024. “Warehouse Lenders Willing to Be Flexible in Tough Times.” Inside Mortgage Finance (March 8,
2024).
5 VULNERABILITIES OF NONBANK MORTGAGE COMPANIES | 31
FSOC Report on Nonbank Mortgage Servicing
e fourth risk is that warehouse lines generally have cross-default provisions so that an NMC
default on one warehouse line can trigger an event of default on other lines. ese provisions can
trigger run dynamics as well. At times of extreme stress, nonbanks can face a rapid unraveling of
their access to credit and liquidity. During the 2007-09 nancial crisis, some NMCs experienced this
type of run on the warehouse lines that nanced their subprime mortgage originations.
Hedges
NMCs also face liquidity risks from margin calls on the hedges that are in place to safeguard against
interest rate movements while the mortgage is funded on the warehouse line. Mortgage originations
decline in value when interest rates rise, and originators hedge this risk by taking positions that
increase in value with interest rates. A sharp decline in interest rates, however, can lead to large
margin calls on these hedges, and such margin calls were a substantial source of instability in March
2020.
60
Credit lines collateralized by MSRs
NMCs can also face liquidity risks from their “MSR lines,” or lines of credit extended by banks, bank
aliates, and private lenders that are collateralized by the NMC’s MSRs. NMCs use this nancing
to cover a variety of operating expenses and for other corporate purposes such as purchasing
MSRs from other rms. MSR lines are smaller in aggregate than warehouse lines: about 35 lenders
extended MSR lines with aggregate credit limits of approximately $30 billion in the fourth quarter of
2023.
61
e terms are less favorable on MSR lines than warehouse lines. Interest rates are higher and the
amount that NMCs can borrow against the collateral value is lower. Moody’s assumes an advance
rate of 65 percent for MSR collateral.
62
e less-favorable terms reect the volatility and subjectivity
of MSR valuations and the fact that the Agencies have the option to move the servicing (and thus
the MSRs) to another rm without compensating the current servicer if that servicer does not meet
the ongoing eligibility requirements specied in the servicing agreement. e Agencies reserve this
right so that they can fulll their guarantees to investors of timely payments of principal and interest.
Although the Agencies enter into acknowledgement agreements that somewhat limit the risks,
creditors still bear some risk of losing their collateral entirely.
Like warehouse lines, MSR lines are subject to margin calls when the MSR collateral valuations
decline, which usually occurs when interest rates fall or delinquency rates rise. Margin calls can
cause liquidity strains in both situations. When interest rates fall, NMCs expect to receive increased
revenue from mortgage renancing in a future period but may need to honor the margin call
immediately. When delinquencies rise, servicers may want to borrow more money on their MSR line
to fund the expenses associated with delinquent loans, but instead may need to provide additional
collateral to comply with collateral margin requirements. For some facilities, the MSR lender
determines the value of the MSR collateral and the NMC has a limited or no ability to dispute the
valuations, which may expose the NMC to additional liquidity risk associated with margin calls.
60 See Pence, Karen. “Liquidity Crises in the Mortgage Market: How does the COVID-19 crisis compare with the Global
Financial Crisis?” Real Estate Economics 50, no. 6 (November):1405-1424. https://doi.org/10.1111/1540-6229.12389.
61 Ginnie Mae analysis of MBFRF data.
62 Moody’s Ratings, “Non-bank Mortgage Finance Companies – U.S: Q4 2023 Update: Core protability decline with
seasonal drop in originations.” New York, NY: Moody’s Ratings, March 26, 2024.
5 VULNERABILITIES OF NONBANK MORTGAGE COMPANIES32 |
FSOC Report on Nonbank Mortgage Servicing
Other sources of funding
NMCs also have funding sources that are less subject to liquidity risk, including equity funding
and long-term nancing. Some large NMCs issue notes from securitization trusts collateralized
by their MSRs and some NMCs issue high-yield corporate bonds. Corporate bonds are expensive
nancing because they are unsecured debt and because rating agencies generally assess these debt
obligations as speculative grade (see Section 5.4). Other NMCs enter into debt arrangements with
private-credit funds and insurance companies. Some of these debt arrangements are collateralized
by the owners’ equity in the company or by other corporate assets. While these nancing sources
may not contribute materially to liquidity risk, they add to the NMC leverage vulnerability described
later in this report.
5.3.2 Liquidity Risk from Servicing Obligations and Repurchase Requests
NMCs may also face liquidity strains under the requirements of the Agency servicing contracts.
Under certain circumstances, these contracts require servicers to advance funds on behalf of
the Agencies or repurchase mortgages from the securitization pools. ese requirements are
more onerous for nonbank mortgage servicers than bank mortgage servicers because NMCs lack
inexpensive sources of liquidity.
Servicing Advances
When a borrower does not make a mortgage payment, the servicer may be required to advance
principal and interest payments to bondholders, insurance premiums to insurance companies,
property tax payments to local governments, and expenses associated with the foreclosure process
to various vendors. e servicer can book these “servicing advances” as an asset on its balance sheet
and is generally repaid most of the advances. However, the servicer must fund the advances in the
interim, and in some cases may incur negative carry by doing so.
Principal and interest advancing requirements, and the associated liquidity strains, can vary across
servicing portfolios. For some Enterprise servicing portfolios, servicers are only required to forward
the interest and principal payments that servicers receive from borrowers. is “actual/actual”
remittance schedule does not impose as large of a liquidity strain on servicers. For other Enterprise
portfolios, servicers are required to send the interest payments that borrowers were scheduled
to make under the mortgage contract, along with whatever principal payments borrowers made
(“scheduled/actual”). For other portfolios, servicers are required to advance the scheduled interest
and principal (“scheduled/scheduled”) regardless of the payments submitted by the borrower. is
remittance schedule places the greatest liquidity strain on servicers and is required for all Ginnie
Mae pools.
Enterprise servicers are only required to advance principal or interest (if required under the
remittance schedule) for up to 120 consecutive days. After that point, the Enterprises generally
purchase the loans out of the pool and servicers are no longer required to advance principal and
interest. Enterprise servicers advance taxes, insurance, and foreclosure costs until the delinquency
is resolved, but servicers are generally reimbursed quickly for these expenses.
Ginnie Mae servicers advance the scheduled interest and principal payments, as well as taxes,
insurance premiums, and foreclosure expenses, until the delinquency is resolved. is process
may take years to complete. Ginnie Mae servicers are also required to advance funds even if they
5 VULNERABILITIES OF NONBANK MORTGAGE COMPANIES | 33
FSOC Report on Nonbank Mortgage Servicing
anticipate limited reimbursement that may result in losses on any advances paid. e VA guaranty,
for example, only covers losses up to a specied limit.
If delinquencies rise substantially, servicers may have diculty obtaining the funds for the
advances. To some extent, servicers can fund the advances with their cash holdings, and the
Agency liquidity requirements are calibrated so that servicers will have some reserves in case
their advancing obligations increase. Servicers can also fund principal and interest advances from
“prepayment oat;” after a borrower renances a mortgage, the principal balance stays with the
servicer for a few weeks before being paid to the investor.
If delinquencies rise sharply or if renancing is so low that little prepayment oat is available,
servicers might need to borrow to nance the advances. NMCs can generally borrow directly against
their advances in the case of Enterprise servicing but have a more-restricted ability for Ginnie Mae
servicing. To protect its guarantee of timely payment of principal and interest to bondholders,
Ginnie Mae is authorized to extinguish issuers from its program and seize its Ginnie Mae assets in
certain cases when the servicer is in violation of the Ginnie Mae guarantee agreement. Although
Ginnie Mae has created acknowledgement agreements to give creditors more reassurance about
the conditions in which they might lose their collateral, a robust private market does not exist for
standalone nancing of Ginnie Mae advances. Instead, servicers tap their MSR lines or notes issued
by securitization trusts collateralized by the MSRs for these funds. MSR valuations decrease when
delinquencies rise, so the servicer’s borrowing capacity on the line may shrink in this situation
instead of expanding with the greater need for advance nancing.
Loan Repurchases
In certain circumstances, Agency counterparties are required to repurchase mortgages from
Enterprise and Ginnie Mae pools. With respect to the Enterprises, seller/servicers’ contracts with
the Enterprises require that all loans delivered must meet certain underwriting and documentation
standards. e Enterprises conduct quality control sampling of loan deliveries to determine
compliance with these standards. If exceptions are discovered during the quality control review
processes, the seller/servicer may be required to either repurchase the loan or provide some level of
remediation, such as a fee or credit enhancement, to remediate a signicant defect. Seller/servicers
have the ability to resolve or appeal the Enterprises’ decisions. Additionally, the Enterprises work
with seller/servicers exhibiting higher signicant defect rates to assist them in improving loan
quality.
With respect to Ginnie Mae, if a mortgage in a Ginnie Mae pool needs to be modied in a way that
changes the terms of the mortgage, the issuer is required to purchase the loan out of the pool at
par before performing the modication.
63
More generally, Ginnie Mae issuers have the option to
purchase out of the pool any mortgage that is more than 90 days delinquent.
64
If the issuer purchases
the mortgage out of the pool, the issuer is no longer required to advance principal and interest to
investors, but the issuer must have the funds to purchase and hold the mortgage.
Both types of repurchases have the potential to strain servicer liquidity. In particular, full purchase
requests could have a more substantial nancial impact depending on the market conditions, the
63 Servicers are also required to purchase reverse mortgages out of Ginnie Mae pools under certain circumstances. is
report focuses on forward mortgages.
64 Ginnie Mae. “Ginnie Mae MBS Guide, Chapter 18, Mortgage Delinquency and Default.” Washington, D.C.: Ginnie
Mae. https://www.ginniemae.gov/issuers/program_guidelines/Lists/MBSGuideAPMsLib/Attachments/126/
Chapter_18.pdf.
5 VULNERABILITIES OF NONBANK MORTGAGE COMPANIES34 |
FSOC Report on Nonbank Mortgage Servicing
signicance of the defect in the “scratch and dent” secondary markets, and the extent to which the
NMCs’ cash and liquidity positions are already under pressure.
5.4 Leverage
Despite the risks that NMCs face from their concentration in mortgage-related assets and services
and from liquidity strains, some NMCs take on considerable debt. One measure of high leverage is
provided by Moody’s, which requires an NMC to have a ratio of secured debt to gross tangible assets
of less than 30 percent for that factor of its long-term debt rating to be consistent with an investment
grade.
65
Of the more than 550 NMCs that le the MBFRF, only 37 percent had secured debt less than
30 percent of gross tangible assets as of the third quarter of 2023. irty-ve percent had ratios in
excess of 60 percent, which Moody’s considers to be speculative of poor standing and subject to very
high credit risk.
66
Moody’s provides a corporate family rating for the debt of 11 NMCs; these tend to be large NMCs
that turn to capital markets for funding.
67
Moody’s consistently rates the debt of these NMCs as
speculative grade (Table 3). As of March 2024, only one of these companies had the highest rating
(Ba1) within the speculative-grade category, and even that rating conveys the judgment of Moody’s
that the debt has “speculative” elements. Two NMCs had a rating (Caa1) that in the judgment of
Moody’s rendered their debt in “poor standing.” Of the factors that Moody’s uses in determining the
ratings, NMCs score most poorly on funds from operations relative to total debt and on secured debt
relative to gross tangible assets.
5.5 Operational Risk
e operations of an NMC can be very complex and require a meaningful technology investment
to create eciencies and improve controls, along with necessary investments required to develop a
highly controlled environment that is overseen by a robust risk management framework. e span of
risks addressed from an operational standpoint include continuity of operations, threats from cyber
events, third-party risk management, quality control, governance, and compliance. ese risks have
grown with the size of NMC portfolios over the last decade.
65 Moody’s Ratings. “Finance Companies Methodology.” New York, NY: Moody’s Ratings, November 25, 2019. https://
ratings.moodys.com/api/rmc-documents/65543.
66 Ginnie Mae analysis of MBFRF data.
67 Moody’s Ratings. “Non-bank Mortgage Finance Companies – U.S: Q4 2023 Update: Core protability decline with
seasonal drop in originations.” New York, NY: Moody’s Ratings, March 26, 2024. Of the rating agencies, Moody’s
provides debt ratings for the largest number of NMCs.
Table 3: Count of NMCs by Corporate Family Credit Rating
Substantial Credit Risk High Credit Risk Very High Credit Risk
Ba1 Ba2 Ba3 B1 B2 B3 Caa1 Caa2 Caa3
X X X
X
X
X
X
X
X
X
X
Note: Each “X” represents the credit rating of one anonymized NMC.
Source: Moody’s Ratings
5 VULNERABILITIES OF NONBANK MORTGAGE COMPANIES | 35
FSOC Report on Nonbank Mortgage Servicing
Additionally, mortgage servicing can be a particularly operationally intensive activity in times of
high delinquencies because servicing delinquent loans is more labor-intensive than servicing
performing loans and requires additional personnel with expertise in addressing such loans.
Processes for servicing delinquent loans also tend to be more complex, leading to additional
operational risk.
68
5.6 Interconnections
NMCs are interconnected to each other and to the broader nancial system through their nancing
and servicing relationships. NMCs often have warehouse lenders and other funders in common.
Financial diculties at one of these core lenders could aect many NMCs. Likewise, the nancial
diculties at one NMC may cause lenders to reassess the credit risk of other NMCs with similar
business models. Lenders may conclude that these other similar NMCs are also vulnerable, even if
these NMCs are solvent at the time, and preemptively tighten credit conditions and thereby cause
nancial diculties for these other NMCs.
As noted in Section 2.2, servicing and subservicing relationships also lead to interconnections
across NMCs and across banks and NMCs. If a large NMC does not pay its subservicer, the
subservicer’s ability to perform loan administration duties for other servicers may be compromised.
If a subservicer experiences distress, the servicers that depend on the subservicer may not be able to
fulll their obligations under their servicing contracts.
68 Goodman, Laurie. “Servicing Costs and the Rise of the Squeaky-Clean Loan.” Washington, D.C.: Urban Institute,
February 2016. https://www.urban.org/sites/default/les/publication/77626/2000607-Servicing-Costs-and-the-Rise-
of-the-Squeaky-Clean-Loan.pdf.
6 TRANSMISSION CHANNELS36 |
FSOC Report on Nonbank Mortgage Servicing
6 Transmission Channels
In a stress scenario, the NMC vulnerabilities described above could cause NMCs to amplify
and transmit the eect of a shock to the mortgage market and broader nancial system. e
consequences, such as borrower harm, could disrupt the provision of nancial services and impair
the ability of the nancial system to support economic activity.
Shocks are dicult to predict. e shocks that NMCs experienced during the 2007-09 nancial crisis
and the COVID-19 pandemic included swings in interest rates and MBS prices that led to margin
calls on warehouse lines, MSR nancing facilities, and hedge positions. Key credit providers to
the mortgage industry experienced negative eects on their own capital and liquidity and pulled
back on extending credit to NMCs. During the 2007-09 nancial crisis, PLS channels shut down,
leaving NMCs without long-term nancing for their nonconforming loan originations and with
covenant violations on their warehouse lines. During and after the 2007-09 nancial crisis, NMCs
experienced larger-than-expected credit losses that also resulted from required repurchases of
delinquent loans and large default servicing costs; in turn, lenders to NMCs pulled funding because
of the counterparty risk. During the COVID-19 pandemic, warehouse lenders tightened their credit
standards because of concerns that newly originated loans would immediately enter forbearance
and become ineligible for securitization.
69
NMCs could transmit the negative eects of these and
other shocks through all four channels set forth in the Council’s Analytic Framework—exposures,
asset liquidation, critical function or service, and contagion.
6.1 Critical Functions and Services
6.1.1 Servicer Financial Stress
If nancial diculties impede NMCs’ abilities to conduct critical functions, mortgage borrowers
can suer harm. Originators have a legal responsibility to ensure that potential homeowners are
informed about their mortgage options and take out loans that are appropriate for their nancial
circumstances. Servicers have a legal responsibility to ensure that borrowers have clear titles to
their homes, that payments are reported accurately to credit bureaus, and that property taxes
and insurance premiums are paid. When borrowers face diculties with making their payments
because, for example, they lose their jobs or their homes are damaged by natural disasters, and they
ask for help, servicers are required to perform analyses of potential loss-mitigation options to help
borrowers determine which options might enable them to weather the disruption to their nances
and allow them to keep their homes.
70
When NMCs are under nancial strain, they may not have the resources to carry out these
responsibilities fully. Although borrowers with federally-backed mortgages were eligible to receive
forbearance relief under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, research
indicates that borrowers were less likely to receive relief if their mortgages were serviced by NMCs
69 For more information on strains faced by NMCs during the 2007-09 nancial crisis, see Kim, You Suk, Steven Laufer,
Karen Pence, Richard Stanton, and Nancy Wallace. 2018. “Liquidity Crises in the Mortgage Market,” Brookings
Papers on Economic Activity (Spring 2018): 347-428. https://www.brookings.edu/wp-content/uploads/2018/03/
KimEtAl_Text.pdf. For more information on strains faced by NMCs during the COVID-19 pandemic, see Pence, Karen.
“Liquidity Crises in the Mortgage Market: How does the COVID-19 crisis compare with the Global Financial Crisis?”
Real Estate Economics 50, no. 6 (November):1405-1424. https://doi.org/10.1111/1540-6229.12389.
70
12 CFR Part 1024 Subpart C.
6 TRANSMISSION CHANNELS | 37
FSOC Report on Nonbank Mortgage Servicing
with weaker liquidity or capital positions.
71
In the aftermath of the 2007-09 nancial crisis, servicers
under duress were more likely to proceed with foreclosures or mortgage modications even though
these actions were not always in the best interest of investors or borrowers.
72
6.1.2 Servicing Transfers
If a servicer is unable to fulll its obligations under the servicing contract, state regulators may
require the transfer of servicing or the Agencies may decide to transfer the servicing. In recent
years, the Mortgage Industry Standards Maintenance Organization (MISMO) Servicing Transfer
Development Workgroup has been collaborating to identify and address issues associated with
servicing transfer data and develop a standardized servicing transfer dataset and process. FHFA,
CFPB, Ginnie Mae, and the Enterprises are supporting these eorts.
73
is initiative is improving
the eciency and accuracy of servicing transfers. Nonetheless, transferring the entire portfolio of
a distressed servicer that handles loans for both the Enterprises and Ginnie Mae remains a time-
consuming and resource-intensive process that can take from a couple months (for small portfolios
of performing loans) to six months or longer (for large portfolios or portfolios with a signicant
number of mortgages in default). It is important to note that no servicing transfers have ever
occurred at the scale of the largest current NMC portfolios.
Servicing transfers are time-consuming because they encompass an extensive list of activities
that require comprehensive processes. In the normal course of business, an eective servicing
transfer may include planning; multiple counterparty coordination across the old and new
servicers and their vendors; signicant data mapping; data transfer trial testing; data transfer
validation; document imaging; and tasks related to payment setup, escrow administration
and customization, and investor accounting and reporting. Comprehensive controls must be
deployed to ensure accurate and timely mortgage account setup including reconciliations and
resolution of unreconciled items. Extensive time must be devoted to consumer compliance that
may need to be tailored to loan-level characteristics and borrower protections at the federal and
state level. Customer communications and complaint-management resolution must be eective
and timely. Servicer sta training must address dierences in servicing practices, timing, and
terminology from the old to new servicer. Mortgage records must be accurate related to document
receipt (imaging, electronic, and recorded calls); custodianship; and safeguarding, including
reconciliation, verication, and validation with sucient follow-up for missing items and trailing
documents.
If servicing is transferred while a servicer is in nancial distress, the servicer could face signicant
challenges in continuing servicing operations until this extensive process is complete. For example,
the servicer could have diculty retaining experienced personnel because sta might depart for
other opportunities due to the uncertainty surrounding the company’s future.
71 See Kim, You Suk, Donghoon Lee, Tess Scharlemann, and James Vickery. “Intermediation Frictions in Debt
Relief: Evidence from CARES Act Forbearance.” Finance and Economics Discussion Series 2022-017. Washington,
D.C.: Federal Reserve Board, 2022. https://doi.org/10.17016/FEDS.2022.017. e CARES Act denes a federally-
backed mortgage as a one-to-four family owner-occupied loan that is guaranteed or insured by the FHA, VA, or
the Department of Agriculture; or purchased or securitized by Fannie Mae or Freddie Mac. See See P.L.116-136.
Coronavirus Aid, Relief, and Economic Security Act.
72 Aiello, Darren J. 2022. “Financially Constrained Mortgage Servicers.” Journal of Financial Economics 144, issue 2: 590-
610. https://www.sciencedirect.com/science/article/pii/S0304405X21004396#sec0003.
73 MISMO. “Servicing Transfers Development Workgroup.” Washington, D.C.: MISMO. https://www.mismo.org/get-
involved/workgroup/servicing-transfers-dwg.
6 TRANSMISSION CHANNELS38 |
FSOC Report on Nonbank Mortgage Servicing
ese operational challenges can lead to substantial borrower harm and market disruption,
especially if the servicer is unable to transfer all relevant information and documents to the
new servicer in a timely and accurate manner.
74
Borrowers having diculty making mortgage
payments are even more susceptible to harm because they may be enrolled in loss mitigation
accommodations or have otherwise negotiated special payment plans with their servicer. ese
arrangements and the supporting documentation may not be transferred to the new servicer.
75
Such
borrowers may need to re-start the loss mitigation process with the new servicer.
6.1.3 NMC Bankruptcy
If a nonbank mortgage servicer enters bankruptcy—which is the primary method of resolution
available to insolvent NMCs—the servicer might have diculty obtaining the nancing required
to continue operations. is type of nancing, known as debtor-in-possession (DIP) nancing, is
frequently provided by an existing creditor seeking to protect its existing interests. However, if the
servicing portfolio has little value due to high levels of borrower delinquencies or nonpayments,
existing creditors may not believe that they have interests to protect and so may be unwilling
to arrange DIP nancing. Without this nancing, the typical nonbank mortgage servicer would
have no ability to continue operating, and its bankruptcy case may be converted from a Chapter
11 restructuring plan (which allows a company to continue operating while it restructures or
reorganizes) to a Chapter 7 liquidation plan, which entails the appointment of a Chapter 7 trustee.
While a Chapter 7 trustee may request the court’s approval to continue to operate the business for
a limited time, in a Chapter 7 case, the company would typically cease its operations immediately,
and its assets—including its servicing infrastructure—would be liquidated while the Agencies would
have to take over the servicing of the portfolio.
A Chapter 7 bankruptcy that did not enable the orderly transfer of servicing could cause signicant
and sustained harm to borrowers and other stakeholders. It could cause mass confusion as
borrowers may be unsure where to send their payments. e accurate and timely payment of funds
to insurance companies, municipalities, vendors, and other stakeholders would likely be disrupted.
Borrowers facing nancial hardship and in need of payment assistance would not be sure whom to
call. Borrowers who are in the process of renancing their mortgages or selling their homes might
not be able to complete the transactions. Borrowers enrolled in loss-mitigation plans might lose
their homes through foreclosure even though this outcome could have been avoided with better
default servicing.
While the government generally has the right to appear in bankruptcy court and be heard, it does
not have the unfettered power to simply take whatever actions it deems necessary with respect to
the bankrupt NMC to protect borrowers.
76
Bankruptcy law contains various prohibitions against
74 See CFPB. “Bulletin 2020-02 – Compliance Bulletin and Policy Guidance: Handling of Information and Documents
During Mortgage Servicing Transfers.” Washington, D.C.: CFPB, April 24, 2020. https://les.consumernance.gov/f/
documents/cfpb_policy-guidance_mortgage-servicing-transfers_2020-04.pdf.
75 See CFPB. “Supervisory Highlights mortgage Servicing Special Edition.” Washington, D.C.: CFPB June 2016. Section
3.5. https://les.consumernance.gov/f/documents/Mortgage_Servicing_Supervisory_Highlights_11_Final_web_.
pdf.
76 If a bankruptcy ling appears imminent, individual authorities may nonetheless be able to exercise police powers
that would not be subject to the automatic stay, for example allowing states to commence or proceed with certain
supervisory actions—including actions designed to protect borrowers from fraud—during the pendency of the
bankruptcy.
6 TRANSMISSION CHANNELS | 39
FSOC Report on Nonbank Mortgage Servicing
actions aecting the bankrupt company (the debtor) that must be carefully navigated by regulators.
77
In fact, the primary responsibility of the Enterprises and Ginnie Mae in a bankruptcy proceeding
is to protect their assets, even if their actions might impose costs on other stakeholders in the
bankruptcy.
6.1.4 Mortgage Origination Disruptions
e focus and concern in this report is harm and disruption to borrowers and the mortgage
market and costs to the federal government from any disruptions to mortgage servicing. However,
suciently large and widespread disruption in the NMC sector could also aect the mortgage
origination market and lead to a temporary restriction of mortgage credit, particularly among
higher-risk borrowers or borrowers who have been historically underserved by the mortgage
market. It could take time for new originators to enter the market to replace capacity lost in a
disruption; in the meantime, credit could become more expensive and dicult to obtain.
6.2 Exposures
e ability of NMCs to execute their functions aects stakeholders in the mortgage market beyond
borrowers. Investors and credit guarantors depend on originators and servicers to minimize credit
losses by underwriting loans with care, guiding borrowers in distress to the available loss-mitigation
options, and if necessary, appropriately handling foreclosures. Municipalities’ nances depend on
receiving property taxes on time. e Agencies can incur sizeable losses when transferring servicing
from a failed servicer to a stable servicer.
e Agencies may experience particularly high costs or credit losses if they are unable to nd
another servicer to take over the portfolio of a distressed NMC. In that case, the Agencies may need
to assume the servicing themselves and transfer the servicing to their contracted subservicers. is
situation can occur if the portfolio contains a large fraction of mortgages in default. In this case, the
nancial obligations associated with servicing the loans may be greater than the expected revenue,
and other servicers may have little interest in acquiring the portfolio. e Agencies have a limited
ability to induce rms to purchase delinquent portfolios once the servicer has become insolvent, in
part because the Agencies typically do not subsidize servicing purchases. In addition, Ginnie Mae
pools must be transferred in their entirety and servicers cannot bid on only the performing loans in
a given pool.
e Agencies have a vested interest in reducing the risks of servicer failure, both because of the
size of the exposures (see Tables 1 and 2) and because remediation tools are limited and the costs
of servicing increase once a servicer fails. Assuming the servicing operations from a bankrupt
or insolvent servicer is particularly costly to the Agencies because the Agencies are not set up
to directly manage long-term servicing operations platforms. When the Agencies do so, they
must assume both the nancial and operational responsibilities of entering into subservicing
arrangements (including fees associated with the portfolios and assuming the advancing burden of
a master servicer), and are exposed to losses through several other channels. e assuming Agency
bears the costs of any losses that are not covered by the credit insurance (credit risk transfers or
mortgage insurance) or guarantee.
77 For example, the automatic stay prohibits numerous activities aecting the debtor, including attempts to exercise
control of the debtor or its property, 11 U.S.C 362(a), although there are exceptions to some of these for the
government’s exercise of its police and regulatory powers. See 11 U.S.C. 362(b)(4).
6 TRANSMISSION CHANNELS40 |
FSOC Report on Nonbank Mortgage Servicing
For Ginnie Mae, the costs can be substantial: the VA guaranty, for example, only covers losses up to
a specied limit, the FHA programmatic curtailments aect what funds are returned to Ginnie Mae,
and the FHA claim must be resolved prior to full remittance of taxes and insurance if a borrower
is in nonpayment status. A failed servicer may have cut corners in its operations or taken outsized
risks in its portfolio or business management in ways that increase costs. For example, delinquent
borrowers may have been placed in inappropriate loan modications, key documents may be
missing from les, or important procedural steps may have been omitted. If the servicer did not
follow the appropriate steps to certify the loan for FHA insurance or a VA guaranty, the FHA and VA
curtailments may be higher.
Ginnie Mae also faces unique challenges in supporting NMCs in its program due to statutory
limitations on its authorities, which dier from the Enterprises. While the Enterprises are able to
purchase loans and hold in their own investment portfolios loans that have been in nonpayment
status for 120 days, Ginnie Mae is not authorized to make similar purchases or maintain its own
investment portfolio. As such, servicing assumption risk may be slightly less acute (though not less
costly) for the Enterprises, which have more preemptive tools available to them to assist a servicer
in distress than Ginnie Mae does. However, in the event of a failure of a larger servicer or multiple
servicers, the lack of durable nancing and liquidity options for NMCs, or for the assuming Agency,
could lead to strain for both the Agency and for other NMCs across the broader mortgage market.
6.3 Contagion and Asset Liquidation
e interconnections noted in Section 5.5 through shared nancing and servicing providers can
lead to contagion. Contagion can arise from the perception of common vulnerabilities or exposures.
e similarities in NMC business models can lead to many contagion scenarios. MSR valuations, for
example, can be volatile and subjective (see Section 5.2). Changes in macroeconomic conditions or
funder risk appetite can lead to a broad-based decrease in MSR valuations across NMCs that may
result in margin calls or a reduction in NMCs’ borrowing capacity. If NMCs are forced to sell their
MSRs to preserve adequate capital and liquidity, the sales could further depress MSR valuations.
Since MSRs are a large share of NMC assets, such rapid liquidation and value deterioration could
have a material impact on NMC solvency and access to credit.
7 EXISTING AUTHORITIES, RECENT ACTIONS, AND COUNCIL RECOMMENDATIONS | 41
FSOC Report on Nonbank Mortgage Servicing
7 Existing Authorities, Recent Actions, and Council
Recommendations
State regulators and federal agencies have taken steps in recent years to mitigate the risks posed by
the rising share of mortgages serviced by NMCs. e combination of various state requirements and
limited federal authorities to impose additional requirements do not adequately and holistically
address the risks described in this report. e Council remains concerned that stress in the nonbank
mortgage sector may lead to disorderly servicing transfers and the failure of stressed nonbank
mortgage servicers to apply collections properly, make required advances, provide adequate loss
mitigation, and perform other servicing activities. Stress in the sector could impair the functioning
of the mortgage market, harm mortgage borrowers, and disrupt economic activity.
e Council’s Analytic Framework explains the range of authorities the Council may use to address
any particular risk, including interagency coordination, recommendations to regulators and
Congress, or the designation of certain entities. e Council’s actions with respect to any particular
identied risk depend on the nature of the risk. Below are the Council’s recommendations for
addressing risks posed by nonbank mortgage servicers as identied in this report. e Council will
continue to monitor the evolution of these risks and may take or recommend additional actions to
mitigate such risks in accordance with the Analytic Framework, if needed.
7.1 Promoting Safe and Sound Operations
State regulators are the primary prudential regulators of NMCs (see Box A). State regulators have
the authority to set prudential nancial standards, such as capital and liquidity, and corporate
governance standards, such as for recovery and resolution planning.
78
In recent years, state
regulators have coordinated to take additional steps to enhance the prudential requirements
for nonbank mortgage servicers and better align with the programmatic requirements nonbank
mortgage servicers face. For example, on July 23, 2021, state regulators approved new prudential
standards—nancial condition and corporate governance standards—for NMCs and aligned
the standards with those required by the Enterprises.
79
As of April 2024, nine states have adopted
these CSBS standards in whole or in part.
80
Given the multistate operations of most NMCs and
applicability of these prudential standards company-wide, CSBS estimates these standards apply
to no less than the 50 largest nonbank mortgage servicers and cover 98 percent of the nonbank
mortgage market by loan count as of April 2024.
81
e CSBS standards are enforceable by states
that have adopted these standards, including through multistate examinations that include at
least one state that has adopted the standards or through referrals to states that have adopted
78 Information provided by CSBS.
79 CSBS. “CSBS Final Model State Regulatory Prudential Standards for Nonbank Mortgage Servicers.” Washington, D.C.:
CSBS, July 2021. https://www.csbs.org/sites/default/les/2021-08/Final%20Model%20Prudential%20Standards%20
-%20July%2023%2C%202021%20Board%20Approved%20Aug.pdf. e nancial condition standards align with
the minimum eligibility requirements established by FHFA for Enterprise single-family seller/servicers, except for
allowable sources of liquidity. e state prudential standards exclude unused, committed servicing advance lines
of credit from the allowable sources of liquidity used to satisfy the requirement, which may result in a higher dollar
amount of liquid assets than that required by the Enterprises.
80
Information provided by CSBS. Other states have comparable prudential standards requirements (e.g., New York).
81 Information provided by CSBS.
7 EXISTING AUTHORITIES, RECENT ACTIONS, AND COUNCIL RECOMMENDATIONS42 |
FSOC Report on Nonbank Mortgage Servicing
these standards.
82
However, these standards are not otherwise enforceable by states that have not
implemented them.
As the primary regulators, states are the only entities with authority to directly supervise NMCs
for prudential risks and with examination and enforcement authorities to promote safety and
soundness. State regulators coordinate examinations of NMCs operating in 10 or more states
through the Multistate Mortgage Committee (MMC).
83
State regulators have developed a “One
Company One Exam” protocol, which is a supervisory process that leverages resources from
throughout the state system to conduct multistate exams of the largest NMCs.
84
e federal government has an interest in addressing servicing risks due to its nancial support
for the Enterprises in conservatorship and the direct responsibility for Ginnie Mae’s guarantee to
bond investors, but federal agencies do not have the requisite tools to mitigate the risks arising from
nonbank mortgage servicers. No federal regulator has direct prudential authorities over nonbank
mortgage servicers. While the CFPB has examination, enforcement, and rule-writing authority for
federal consumer nancial law applicable to the NMCs, the CFPB is not a comprehensive prudential
regulator. FHFA is the regulator of the Enterprises and FHLBanks. As such, FHFA has oversight of
Enterprise and FHLBank management of counterparty risk exposures but has no direct supervisory
authority and limited direct enforcement authority over nonbank mortgage servicers. Ginnie
Mae also has no regulatory authority over NMCs or other counterparties, but it can set eligibility
requirements for entities participating in Ginnie Mae programs as part of its counterparty risk
management.
On August 17, 2022, FHFA (as conservator) and Ginnie Mae jointly announced updates to align
minimum requirements for NMCs doing business with the Enterprises and Ginnie Mae.
85
e
updated requirements include modied denitions of capital and liquidity and heightened
requirements for large nonbank mortgage servicers with $50 billion or more of total single-family
servicing unpaid principal balance. ough they announced minimum requirements for relevant
NMC counterparties, neither FHFA nor Ginnie Mae has direct prudential supervisory authority
with regard to servicing performed by, or eective enforcement authority over, nonbank mortgage
servicer counterparties of the Enterprises and Ginnie Mae, respectively.
86
82 Information provided by CSBS.
83 e MMC oversees a risk proling group that aids in identifying and assigning risk proles to multistate NMCs based
on various nancial and operational risk factors and assists developing and maintaining mortgage data analytics
tools. For more information on MMC, see CSBS. “MMC Mortgage Examination Manual.” Washington, D.C.: CSBS,
May 2, 2019. https://www.csbs.org/sites/default/les/external-link-les/MMC%20Mortgage%20Examination%20
Manual%20v2%20-%20May%202019.pdf.
84
Information provided by CSBS.
85 FHFA. “Fact Sheet: Enterprise Seller/Servicer Minimum Financial Eligibility Requirements.” Washington, D.C.: FHFA,
August 17, 2022. https://www.fhfa.gov/Media/PublicAairs/Documents/Fact-Sheet-Enterprise-Seller-Servicer-Min-
Financial-Eligibility-Requirements.pdf; Ginnie Mae. “FHFA and Ginnie Mae Announce Updated Minimum Financial
Eligibility Requirements for Enterprise Seller/Servicers and Ginnie Mae Issuers.” Washington, D.C.: Ginnie Mae,
August 17, 2022. https://www.ginniemae.gov/newsroom/Pages/PressReleaseDispPage.aspx?ParamID=251.
86 In 2016, the Government Accountability Oce (GAO) issued a recommendation that remains open for Congress to
consider granting FHFA authority to examine third parties that do business with the Enterprises, including nonbank
mortgage servicers. GAO. “Nonbank Mortgage Servicers: Existing Regulatory Oversight Could Be Strengthened
(GAO-16-278).” Washington, D.C.: GAO, March 2016. https://www.gao.gov/assets/d16278.pdf. Additionally, FSOC’s
annual reports have called for third-party supervisory authority. For instance, the Council’s 2023 Annual Report
recommended that “Congress pass legislation that ensures that the FHFA, NCUA, and other relevant agencies have
adequate examination and enforcement powers to oversee third-party service providers that interact with their
regulated entities.” Financial Stability Oversight Council. Annual Report. Washington, DC: Council, December 14,
2023. https://home.treasury.gov/system/les/261/FSOC2023AnnualReport.pdf.
7 EXISTING AUTHORITIES, RECENT ACTIONS, AND COUNCIL RECOMMENDATIONS | 43
FSOC Report on Nonbank Mortgage Servicing
Apart from suspending NMCs from doing business with the Agencies, the Agencies have limited
authority to require and ensure their NMC counterparties develop credible and comprehensive
recovery and resolution plans at the corporate level to better position the Agencies and their
counterparties for stress or failures. Ginnie Mae is developing recovery plans to enhance Ginnie
Mae’s ability to recover its servicing portfolios from its issuers in the event of failure, but such plans
are limited to the management of the Ginnie Mae portfolio. Ginnie Mae’s intent in developing this
requirement is to reduce the risk to itself and taxpayers by enabling prompter recovery of defaulted
portfolios in the event of a failure of a participant in the Ginnie Mae program. Similarly, while these
are not resolution plans, the Enterprises require large NMC counterparties to submit capital and
liquidity contingency funding plans.
87
State regulators, FHFA, the Enterprises, and Ginnie Mae conduct signicant risk analysis of
nonbank mortgage servicers but are limited in what information they can share with each other.
State regulators perform regular monitoring and examinations of mortgage servicers, including
using call report data to build customized institution dashboards. e Enterprises require large
NMC counterparties to conduct an annual liquidity stress test as part of their enhanced eligibility
requirements. Ginnie Mae has developed a methodology and analytical approach for an NMC issuer
stress testing framework to project certain NMC counterparties’ performance under expected and
stressed scenarios. ese eorts allow for better monitoring of current or potential future nancial
strains across the sector and at specic counterparties.
Coordination among state regulators and federal agencies is important given the fragmented
oversight structure and steps have been taken to improve coordination,
88
but legal impediments
to information sharing limit its eectiveness. Ginnie Mae is restricted in what it can share with
state and federal regulators by the Trade Secrets Act.
89
FHFA receives certain information on NMC
counterparties from the Enterprises and may be limited in its ability to share company-specic
information with state and federal regulators. State regulators, relevant federal regulators, and
Ginnie Mae recently performed joint tabletop exercises to assess how agencies would respond
individually and coordinate together during a potential stress event, but challenges with information
sharing limit how constructive the coordination can be.
Recommendations
e Council supports recent eorts by the states, FHFA, and Ginnie Mae to continue to promote
safety and soundness and enhance the resilience of the nonbank mortgage servicing sector,
including actions to increase capital and liquidity requirements, monitor sector-wide and
institution-level risks, and stress test for potential adverse scenarios. e Council encourages
state regulators, as the primary prudential regulators of nonbank mortgage servicers, to enhance
prudential requirements as appropriate, adopt enhanced standards in those states that have not
yet done so, and further coordinate supervision of nonbank mortgage servicers. State regulators
87 FHFA. “Fact Sheet: Enterprise Seller/Servicer Minimum Financial Eligibility Requirements.” Washington, D.C.: FHFA,
August 17, 2022. https://www.fhfa.gov/Media/PublicAairs/Documents/Fact-Sheet-Enterprise-Seller-Servicer-Min-
Financial-Eligibility-Requirements.pdf.
88 See, for example FHFA and CSBS. “State Financial Regulators and FHFA Enter Into Mortgage Market Information
Sharing Agreement.” Washington, D.C.: FHFA and CSBS, April 10, 2024. https://www.fhfa.gov/Media/PublicAairs/
Pages/State-Financial-Regulators-and-FHFA-Enter-Into-Mortgage-Market-Information-Sharing-Agreement.aspx or
https://www.csbs.org/newsroom/state-nancial-regulators-and-fhfa-enter-mortgage-market-information-sharing-
agreement.
89
e Trade Secrets Act prohibits federal agencies and personnel from sharing certain information unless authorized by
law.
7 EXISTING AUTHORITIES, RECENT ACTIONS, AND COUNCIL RECOMMENDATIONS44 |
FSOC Report on Nonbank Mortgage Servicing
should require recovery and resolution planning
90
by large nonbank mortgage servicers to enhance
the nancial and operational resilience of the nonbank mortgage sector. State regulators should
implement such requirements as appropriate to ensure that nonbank mortgage servicers develop
the capabilities needed to support operational resilience in periods of stress. e Council also
recommends state regulators and federal agencies continue enhanced monitoring of the nonbank
mortgage sector and continue to develop tabletop exercises to prepare for the failure of one or more
nonbank mortgage servicers.
While nonbank mortgage servicers have grown in size and market share, federal authority to
mitigate the associated risks remains limited. e Council encourages Congress to provide FHFA
and Ginnie Mae with additional authorities to better manage the risks of NMC counterparties
to the Enterprises and Ginnie Mae, respectively. Congress should consider providing FHFA and
Ginnie Mae with additional authority to establish appropriate safety and soundness standards and
to directly examine nonbank mortgage servicer counterparties for, and enforce compliance with,
such standards. FHFA and Ginnie Mae should act in coordination with each other as well as state
and federal regulators when feasible. In addition, legislation should consider enhancing protections
more broadly to help distressed borrowers keep their homes.
To facilitate coordination, the Council recommends Congress consider authorizing Ginnie Mae
and encouraging state regulators to share information with each other and with Council member
agencies, as appropriate. Legislation should ensure that the sharing of condential information by
or with Ginnie Mae, Council member agencies, and state regulators does not result in the loss of any
applicable privilege or of condentiality protections.
7.2 Addressing Liquidity Pressures in the Event of Stress
As described in Section 5, nonbank mortgage servicers may face liquidity pressure during a stress
event as their nancing becomes more expensive and servicing advance requirements draw on
their available liquidity resources. However, there are limited liquidity facilities to support nonbank
mortgage servicers, and several liquidity options that are available to banks are not available to
nonbank mortgage servicers. FHLBank membership, and thus lending, is limited to commercial
banks, savings institutions, insurance companies, credit unions, and community development
nancial institutions.
91
Only depository institutions that meet certain minimum requirements can
establish borrowing privileges at the Federal Reserve (the “discount window”).
92
Even if NMCs
were eligible to participate in similar liquidity facilities, NMCs would generally lack adequate
unencumbered, high-quality, eligible collateral to obtain secured loans in the event of stress. Both
the FHLBanks and the discount window routinely take whole loans as collateral if they meet certain
requirements. However, neither the FHLBanks nor the discount window currently accept servicing
advances or MSRs as collateral, which are two signicant sources of unencumbered assets for
nonbank mortgage servicers.
Ginnie Mae has limited authorities to respond to liquidity stress experienced by its program
participants. During the COVID-19 pandemic, Ginnie Mae’s Pass-rough Assistance Program
(PTAP) helped participants in the Ginnie Mae program meet their obligations to advance
90 Recovery plans require rms to proactively plan and prepare for stress events, and resolution plans require rms to
strategize for rapid and orderly resolution in the event of material nancial distress or failure.
91 See 12 U.S.C. 1424.
92 See 12 CFR 201.
7 EXISTING AUTHORITIES, RECENT ACTIONS, AND COUNCIL RECOMMENDATIONS | 45
FSOC Report on Nonbank Mortgage Servicing
principal and interest to investors.
93
PTAP usage was low because servicers continued to make the
required advances by using oat income generated by their high origination activity due to the
historically low interest rate environment. However, the mere existence of a backstop provided
some reassurance to the secondary mortgage market. While helpful, PTAP serves only as a limited
backstop to the market. PTAP is limited to principal and interest advances; Ginnie Mae does not
have the authority through PTAP to provide assistance to cover other obligations that can cause
liquidity stress to a nonbank mortgage servicer, such as advancing requirements related to real
estate taxes, insurance, foreclosure, or maintenance costs. In a severe downturn, these advances
could be large enough to destabilize a nonbank mortgage servicer. As a result, PTAP in isolation
would not address the full range of liquidity risks embedded in the servicers’ advance obligations.
It would also not address potential cross-default liquidity pressures associated with the nonbank
mortgage servicers’ obligations to the Enterprises.
Federal agencies and the Enterprises have taken additional steps to relieve liquidity pressures for
nonbank mortgage servicers, including limiting servicing advances, accelerating reimbursements,
and encouraging private capital ows. Several of these actions were taken during the COVID-19
pandemic, when liquidity concerns were elevated.
94
At the onset of the COVID-19 pandemic, the
Enterprises acted to limit servicer obligations to advance scheduled monthly principal and interest
payments to four months for certain loans in an eort to limit liquidity pressure.
95
FHA’s COVID-19
National Emergency Standalone Partial Claim Program and the USDA’s Mortgage Recovery Advance
resulted in servicers being reimbursed earlier for certain payments, which helped limit liquidity
pressures.
96
Ginnie Mae has also expanded its acknowledgement agreement
97
program in recent years to, among
other eorts, facilitate private capital to invest in MSRs and provide funding for servicing advances.
98
However, with sucient funding and operational capacity, certain administrative solutions could be
explored to improve the durability of nancing—such as allowing for loan-level pooling, exploring
options to reduce risks for lenders in case a servicer fails, and enhancing the government-insurance
93 For more on PTAP, see Ginnie Mae. “Ginnie Mae PTAP Assistance.” Washington, D.C.: Ginnie Mae. https://www.
ginniemae.gov/issuers/program_guidelines/pages/ptap.aspx.
94 While the nonbank mortgage servicing sector called for the federal government to develop a liquidity facility and
provide other assistance to the sector early in the COVID-19 pandemic, the action was ultimately unnecessary due
to robust recovery of the housing market. See MBA. “MBA Urges Feds to Take Immediate Further Steps on Market
Stabilization, Liquidity.” Washington, D.C.: MBA, March 23, 2020. https://newslink.mba.org/mba-newslinks/2020/
march/mba-newslink-monday-march-23-2020/mba-urges-feds-to-take-urgent-steps-on-market-stabilization-
liquidity/.
95 FHFA. “FHFA Addresses Servicer Liquidity Concerns, Announces Four Month Advance Obligation Limit for
Loans in Forbearance.” Washington, D.C.: FHFA April 21, 2020. https://www.fhfa.gov/Media/PublicAairs/Pages/
FHFA-Addresses-Servicer-Liquidity-Concerns-Announces-Four-Month-Advance-Obligation-Limit-for-Loans-in-
Forbearance.aspx.
96 FHA. “Mortgagee Letter 2020-06.” Washington, D.C.: FHA, April 1, 2020. https://www.hud.gov/sites/dles/OCHCO/
documents/20-06hsngml.pdf; USDA. “Chapter 18: Servicing Non-Performing Loans – Accounts with Repayment
Problems.” USDA (March 9, 2016). https://www.rd.usda.gov/sites/default/les/3555-1chapter18.pdf.
97 “Subject to Ginnie Mae’s prior written approval, which will be granted or withheld in Ginnie Mae’s sole discretion,
an Issuer may pledge its servicing rights as security for a loan from a private lender (the secured party) pursuant to
an Acknowledgment Agreement among the Issuer, the secured party and Ginnie Mae. Pledges of servicing rights
accomplished pursuant to an Acknowledgment Agreement aord the secured party broader rights with respect to
an Issuer’s servicing portfolio than are accorded for pledges not approved by Ginnie Mae…” Ginnie Mae. “Ginnie
Mae MBS Guide, Chapter 21.” Washington, D.C.: Ginnie Mae, October 31, 2022. https://www.ginniemae.gov/issuers/
program_guidelines/MBSGuideLib/Chapter_21.pdf.
98 For example, see Ginnie Mae. “Ginnie Mae approves private market servicer liquidity facility.” Washington, D.C.:
Ginnie Mae, April 7, 2020. https://www.ginniemae.gov/newsroom/Pages/PressReleaseDispPage.aspx?ParamID=175.
7 EXISTING AUTHORITIES, RECENT ACTIONS, AND COUNCIL RECOMMENDATIONS46 |
FSOC Report on Nonbank Mortgage Servicing
claims processes. Improvements in claims processing and loss mitigation eorts in the FHA and
VA programs, in particular, could reduce the operational and carrying cost burdens servicers face
in the normal course of business for government loan products—further enhancing liquidity and
operational risk mitigation eorts.
Each of these actions and the potential actions help to address some of the liquidity pressures that
nonbank mortgage servicers face in a stress event but would not address many liquidity issues
identied in Section 5.3, such as those associated with margin calls or corporate debt repayment.
Recommendations
e Council recommends that Congress consider legislation to provide Ginnie Mae with authority
to expand the PTAP into a more eective liquidity backstop to mortgage servicers participating in
the program during periods of severe market stress. PTAP should be expanded to include real estate
tax payments, insurance premiums, foreclosure costs, and maintenance advances, and Ginnie Mae
should have discretion to make PTAP available during periods of severe market stress.
e Council supports HUD’s ongoing administrative work to relieve liquidity pressures for Ginnie
Mae issuers as well as Ginnie Mae’s ongoing eorts to explore ways to facilitate nancing for
relieving liquidity pressures for solvent issuers. Federal agencies should further explore and evaluate
how existing policy tools and authorities could be further leveraged to reduce liquidity pressures
from servicing advance obligations in times of stress. Such additional liquidity support should
be paired with additional regulatory authorities recommended in Section 7.1. e responsible
federal agencies should also be provided sucient resources to make these and other necessary
administrative reforms.
7.3 Ensuring Continuity of Servicing Operations
It is important to ensure the continuity of servicing operations to minimize the harm to mortgage
borrowers and costs to the federal government when a servicer fails and is unable to collect
and remit payments, perform loss mitigation activities for borrowers, or other critical functions.
Continuity of servicing operations should also address cases in which the servicer subcontracted
servicing operations to another entity.
e Enterprises and Ginnie Mae have certain tools for managing the failure of servicers that
service loans for their respective programs, including facilitating the transfer of servicing to a
new servicer. To facilitate transfers, the Enterprises and Ginnie Mae separately contract with
designated backup servicers that are paid to maintain excess servicing capacity in the event that
the Enterprises or Ginnie Mae need to operationally transfer servicing from a failed servicer. e
process of transferring servicing can take time, especially during a stress event, when delinquencies
may be elevated and there is limited capacity or appetite from other servicers to acquire additional
servicing.
In other situations, keeping servicing at a stressed servicer may be in the Agencies’, borrowers’, and
federal and state regulators’ best interests, or servicing may be unable to be transferred before
the failing servicer enters bankruptcy.
99
As described in Section 6.1.3, should an NMC become
insolvent, the primary option for resolving the company is through bankruptcy. An NMC must
obtain nancing to maintain operations through the bankruptcy process. If private-sector nancing
99 Ginnie Mae, for example, typically does not seek an immediate transfer of a portfolio, but rather seeks to stabilize the
asset and may contemplate a subsequent asset sale as portfolio and market conditions dictate.
7 EXISTING AUTHORITIES, RECENT ACTIONS, AND COUNCIL RECOMMENDATIONS | 47
FSOC Report on Nonbank Mortgage Servicing
is not available, state regulators, Ginnie Mae, and FHFA do not have authorities to help nonbank
mortgage servicers in bankruptcy maintain servicing operations, or to provide bridge nancing to
help maintain a servicer’s operations to facilitate an orderly transfer to a third party, including a
separately chartered bridge servicing company. Additionally, the Agencies may further destabilize
a servicer by terminating contracts.
100
Without appropriate nancing of its servicing operations, a
failing NMC may enter Chapter 7 bankruptcy, likely leading it to promptly cease operations and
liquidate its assets, which could lead to severe disruptions to a wide range of servicing operations,
including loss-mitigation activities for mortgage borrowers. Such disruptions can be particularly
harmful to borrowers experiencing nancial diculty and can lead to higher losses for the Agencies;
it is important for there to be tools to ensure the continuity of those loss-mitigation activities when a
nonbank mortgage servicer fails.
State and federal governments have limited authorities to provide funding to facilitate an orderly
wind down and transfer of servicing operations in the event of an NMC’s insolvency. e primary
resolution mechanism for a nonbank mortgage servicer is the bankruptcy process,
101
and the
government has little ability to intervene in the bankruptcy process to protect borrowers, as
described in Section 6.1.3.
102
Under a narrow set of circumstances, the FDIC can be appointed
receiver of a failed nancial company, potentially including an NMC, upon a determination that
the nancial company would meet specic statutory criteria under Title II of the Dodd-Frank Act.
103
However, placing a company in resolution under Title II could provide only limited liquidity support
to a failed NMC from the Orderly Liquidation Fund, borrowing from which is subject to a statutory
cap that depends on the company’s assets available for repayment.
104
Recommendation
e Council encourages Congress to consider legislation to establish a fund nanced by the
nonbank mortgage servicing sector to provide liquidity to nonbank mortgage servicers that are
in bankruptcy or have reached the point of failure. e fund should be designed to facilitate
operational continuity of servicing, including loss-mitigation activities for borrowers and
advancement of monthly payments to investors, until such time as servicing obligations can be
transferred in an orderly fashion or the company has been recapitalized by investors or sold.
e legislation should outline the scope and objectives of the fund, which include avoiding
100 Provided such terminations or suspensions are not considered to be due solely to the servicer having started a
bankruptcy case.
101 Authorities may le charges to exercise police and regulatory powers that would not be subject to the automatic stay.
102 is is distinct from other contexts where there are mechanisms established to mitigate undesirable consequences
of insolvency or failure. Under the Federal Deposit Insurance Act, the FDIC uses the Deposit Insurance Fund to
resolve failed insured depository institutions, which may include consideration of servicing continuity and the orderly
transfer of servicing. 12 U.S.C. 1811, et seq.
103
12 U.S.C. 5381, et seq. e statutorily prescribed appointment process generally requires the recommendations of the
Federal Reserve Board and the FDIC’s Board of Directors (upon a vote of two-thirds of the members then serving on
the Federal Reserve Board and FDIC Board) and for the Secretary of the Treasury, in consultation with the President,
to determine that there is no viable private sector alternative to prevent default, that the nancial company’s
resolution in bankruptcy would have serious adverse eects on nancial stability in the United States, and that a Title
II resolution would avoid or mitigate those eects, among other required determinations. 12 U.S.C. 5383.
104
ere are limits to the amount the FDIC may borrow from the U.S. Treasury subject to certain conditions. e initial
limit is the amount equal to 10 percent of the nancial company’s total consolidated assets based on the most recent
nancial statements available. If funding is needed for more than 30 days or in excess of the 10 percent, the FDIC can
obtain funding of up to 90 percent of the fair value of the nancial company’s total consolidated assets available for
repayment, subject to certain conditions, including that a mandatory repayment plan acceptable to the Secretary of
the Treasury must be in eect.
7 EXISTING AUTHORITIES, RECENT ACTIONS, AND COUNCIL RECOMMENDATIONS48 |
FSOC Report on Nonbank Mortgage Servicing
taxpayer-funded bailouts. e legislation should also provide sucient authorities to an existing
federal agency to implement and maintain the fund, assess appropriate fees, set criteria for
making disbursements, and mitigate risks associated with the implementation of the fund. e
establishment of such a fund should be accompanied by the additional regulatory authorities and
consumer protections recommended in Section 7.1.
ABBREVIATIONS | 49
FSOC Report on Nonbank Mortgage Servicing
Abbreviations
Agencies Fannie Mae, Freddie Mac, and Ginnie Mae
Agency
counterparties
Enterprise seller/servicers and Ginnie Mae issuers
Analytic Framework
FSOC’s Analytic Framework for Financial Stability Risk Identification, Assessment,
and Response
CARES Act Coronavirus Aid, Relief, and Economic Security Act
CFPB Consumer Financial Protection Bureau
CFTC Commodity Futures Trading Commission
Council Financial Stability Oversight Council
CSBS Conference of State Bank Supervisors
DIP Debtor-in-Possession
Dodd-Frank Act Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
Fannie Mae Federal National Mortgage Association
FDIC Federal Deposit Insurance Corporation
FHA Federal Housing Administration
FHFA Federal Housing Finance Agency
FHLBanks Federal Home Loan Banks
FIO Federal Insurance Oce
Freddie Mac Federal Home Loan Mortgage Corporation
GAO Government Accountability Oce
Ginnie Mae Government National Mortgage Association
HMDA Home Mortgage Disclosure Act
HUD U.S. Department of Housing and Urban Development
MBS Mortgage-Backed Security
MBFRF Mortgage Bankers Financial Reporting Form
MISMO Mortgage Industry Standards Maintenance Organization
MMC Multistate Mortgage Committee
MSR Mortgage Servicing Right
NCUA National Credit Union Administration
NMC Nonbank Mortgage Company
NMLS Nationwide Multistate Licensing System
OCC Oce of the Comptroller of the Currency
OFR Oce of Financial Research
PIH Public and Indian Housing Program
PLS Private-Label Securitization
PTAP Pass-Through Assistance Program
REO Real Estate Owned
RHS Rural Housing Service
ROE Return on Equity
ABBREVIATIONS50 |
FSOC Report on Nonbank Mortgage Servicing
SEC Securities and Exchange Commission
SES State Examination System
SPSPAs Senior Preferred Stock Purchase Agreements
UPB Unpaid Principal Balance
The Enterprises Fannie Mae and Freddie Mac
VA Department of Veterans Aairs
LIST OF FIGURES | 51
FSOC Report on Nonbank Mortgage Servicing
List of Figures
Primary Activity of Servicers and Subservicers ................................................................................8
Figure 1: Share of NMC Servicing Subserviced by Another Firm ................................................9
Table 1: Top Agency MBS Servicers, Q4 2023 ............................................................................... 10
Table 2: Top Residential Mortgage Subservicers, Q4 2023 .......................................................12
Figure 2: Outstanding Mortgage Balances by Sector .................................................................. 14
Figure 3: Loan Origination by Credit Guarantor ............................................................................. 15
Figure 4: Loan Origination by Type of Originator .......................................................................... 17
Figure 5: Share of Originations in Agency Pools Contributed by Independent NMCs ....... 19
Figure 6: NMC Share of Agency Servicing ...................................................................................... 19
Figure 7: NMC Share of Originations by Race or Ethnicity .........................................................22
Figure 8: NMC Share of Originations to Low and Moderate Income (LMI) Borrowers .......22
Figure 9: NMC Share of Agency Originations by FICO Score .................................................. 23
Figure 10: Net Production Income and Mortgage Originations ................................................25
Figure 11: Share of Firms that are Profitable ...................................................................................26
Figure 12: Annualized Return on Equity .......................................................................................... 27
Figure 13: Composition of NMC Assets ...........................................................................................28
Table 3: Count of NMCs by Corporate Family Credit Rating ..................................................... 34
1500 PENNSYLVANIA AVENUE, NW
WASHINGTON, D.C. 20220
