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GAO: More oversight needed of nonbank servicers

The government’s watchdog agency has recommended that Congress ramp up regulatory oversight of nonbank servicers.

In a report this week, the Government Accountability Office (GAO) said nonbanks now service roughly a quarter of all mortgages, but do not face the same level of oversight as banks. Nonbank servicers could also pose greater risks to investors and consumers, the GAO said.

Nonbanks serviced an estimated 24.2 percent of mortgages  — an estimated $9.9 trillion in loan balances — as of second-quarter 2015, up from just 6.8 percent in 2012, the GAO report said. That rise has come as banks have backed away from the mortgage market because of tightened regulations, the legal risks and the higher costs associated with mortgage servicing.  

The GAO urged Congress to give the Federal Housing Finance Agency  (FHFA) the explicit authority to examine the activities of nonbanks that service loans purchased by Fannie Mae and Freddie Mac.

FHFA has indirect oversight of the nonbank servicers as the conservator of Fannie and Freddie, but no explicit right to examine the operations of these nonbank servicers.

By contrast, the GAO noted, the Office of the Comptroller of the Currency has the authority to examine bank servicers.

Some nonbank servicers may be “susceptible to difficulties due to less mature infrastructures relative to banks for tasks such as managing regulatory compliance, risks and internal controls,” the GAO said.  

The GAO also said that “liquidity challenges are more pronounced for nonbanks.”

Some nonbank servicing portfolios have grown rapidly. That growth “did not always coincide with their use of more advanced operating systems or effective internal controls to handle their larger portfolios,” the GAO said.

In a second recommendation, the GAO urged the Consumer Financial Protection Agency (CFPB) to compile a list of all nonbank servicers.

The CFPB  “does not have a full record of entities under its purview” and "may not be able to comprehensively enforce compliance with consumer financial laws," the report said. The GAO report contained a list of 641 nonbank services supplied by the government-sponsored enterprises and Ginnie Mae. 

The GAO's examination was prompted by U.S. Sen. Elizabeth Warren, D-Mass., and Rep. Elijah E. Cummings, D-Maryland, who jointly asked in the fall of 2014 for an investigation into the rising trend of nonbank servicing.


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