Recommendations in a new Financial Stability Oversight Council report could give
The report discussed at an FSOC meeting on Friday calls for Congress to provide the Federal Housing Finance Agency and Ginnie Mae with additional authorities aimed at improving their ability to manage nondepository counterparties.
It also included calls for the expansion of the Pass-Through Assistance Program that Ginnie Mae used as an emergency facility during the pandemic, congressional involvement and an industry funded liquidity resource.
A fund financed by the industry could help sustain a troubled nonbank long enough to transfer servicing to a capable party in an emergency while avoiding taxpayer-supported bailouts, supporters like Treasury Secretary Janet Yellen said in a statement Friday.
However, officials from some regulatory bodies, while backing other recommendations, advised caution around more ambitious efforts in the report like the industry-funded facility.
"The FSOC's recommendation to establish a nonbank-financed liquidity fund, administered by a newly authorized federal regulator, is premature at best," said Brandon Milhorn, president and CEO of the Conference of State Bank Supervisors, in a press statement.
Milhorn showed concern about the potential for "unintended consequences" that could "negatively impact the nonbank mortgage market," calling for a go-slow and well-researched approach.
"Instead, federal agencies, Ginnie Mae and Congress should focus their immediate attention efforts on targeted structural changes included in the FSOC report," he said. "I encourage Congress to remove any legal impediments to information sharing between Ginnie Mae and state regulators."
Superintendent Adrienne Harris of the New York Department of Financial Services, a non-voting member of FSOC, weighed in on a recommendation that "state regulators require the largest nonbank servicers adopt recovery and resolution plans."
Harris said in a statement that the plans could be constructive for nonbank mortgage servicers if they are not "a one-time exercise left to sit on a shelf collecting dust until a crisis strikes." The plans "must be practical, actionable, tested and kept up to date," she said.
One early industry reaction to the report from the Community Home Lenders of America suggested that a permanent and expanded version of the last-resort PTAP program, as
"We are pleased that FSOC has embraced CHLA's longstanding call to expand PTAP which would create a liquidity backstop," CHLA Executive Director Scott Olson said in a press statement.
FSOC "identifies sensible opportunities for structural reform to the Ginnie Mae program while highlighting Ginnie Mae's ongoing effort to expand liquidity options and relieve liquidity pressure on issuers," said Bob Broeksmit, president and CEO at the Mortgage Bankers Association.
However, the mortgage industry has historically been wary of other FSOC intervention amid efforts to characterize the increased nonbank presence within it as a potential systemic risk.
"We share FSOC's goals of a safe, stable, and sustainable financial services marketplace, but some of the report's recommendations are unnecessary," Broeksmit said.
"While we support national standards for capital and liquidity requirements, layering duplicative supervision requirements or supervisory entities onto a heavily regulated market will add significant cost and complexity. Managing such changes, should Congress require them, could lead to reduced appetite for mortgage servicing," he added.
That, combined with a pending bank capital proposal could drive depositories further out of the mortgage market and have an adverse impact on the market, Broeksmit added.
Agencies that more specifically manage nonbank counterparties like Ginnie and FHFA called the current report balanced in acknowledging servicers' risks while also stressing their benefits.
Many nonbanks do tend to be monoline entities focused on single-family housing finance and may be vulnerable to swings in the volatile valuations of mortgage servicing rights. They advance some payments on behalf of delinquent borrowers and support a mortgage-backed securities market that helps fund a wide swath of affordable housing in the United States.
"The FSOC report calls attention to the strengths of nonbank mortgage servicers, including their commitment to the mortgage market and to supporting sustainable homeownership for historically underserved populations, along with several structural vulnerabilities," FHFA Director Sandra Thompson said in a statement.
"I am particularly encouraged that the FSOC recommends Congress consider providing FHFA with additional authority to establish appropriate safety and soundness standards for nonbank mortgage servicing and to directly examine for compliance with these standards," Thompson added, referring to
Some of the entities FHFA regulates have been wary of an expansion of its authority.
Rohit Chopra, director of the Consumer Financial Protection Bureau, also showed interest in more closely regulating nonbank servicers in his remarks at the meeting on Friday, citing previously mentioned areas of scrutiny the CFPB has been targeting like
He additionally noted interest in further reforms around distressed mortgage servicing and foreclosure prevention that would move regulation away from a "check the box" exercise. (
