U.S. Treasury Secretary Janet Yellen calls for expanded regulatory oversight of the nonbank mortgage sector during a Financial Stability Oversight Council meeting.
In a recent meeting of the Financial Stability Oversight Council (FSOC), U.S. Treasury Secretary Janet Yellen urged Congress to expand regulatory authority over the nonbank mortgage sector, citing concerns about its potential threat to financial stability. Yellen, who chairs the FSOC, called for increased oversight during the council's session.
During the meeting, the council members, who are also heads of other top financial regulators, gave unanimous consent to publish a report along with recommendations addressing the oversight of nonbank mortgage companies. This sector has grown significantly and now encompasses a large portion of the mortgage market.
In her prepared remarks, Yellen stated, "Put simply, the vulnerabilities of nonbank mortgage companies can amplify shocks in the mortgage market and undermine financial stability. We need further action to promote safe and sound operations, address liquidity risks, and promote continuity of servicing operations when a servicer cannot perform its critical functions."
The proposal presented on Friday suggests that Congress should create an industry-financed fund to provide liquidity to failing nonbank mortgage services. This recommendation comes in response to issues raised by the industry at the onset of the COVID-19 pandemic.
Nonbanks tend to have higher leverage and rely on short-term funding, making them more vulnerable to changes in mortgage servicing rights values, housing prices, and fluctuations in interest and delinquency rates.
Failure of nonbanks could not only impact borrowers adversely but also potentially leave the federal government responsible for taking on servicing obligations. Yellen warned that significant disruptions in this sector could lead to restrictions in mortgage lending.
