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Thursday, May 8, 2014

FSOC Highlights Risks of Nonbank Mortgage Servicing

In its annual report and during its public session, the Financial Stability Oversight Council trained scrutiny on the stability risks posed by the increasing involvement of nonbanks in the mortgage servicing business and recommended more regulation. The council urged “state regulators work together to collaborate on prudential and corporate governance standards to strengthen these companies.” The FSOC added:

While the CFPB and state regulators have some authority over these companies, many of them are not currently subject to prudential standards such as capital, liquidity, or risk management oversight. Further, in many cases, mortgage investors’ ability to collect on mortgages is dependent on a single mortgage servicing company, where failure could have significant negative consequences for market participants.

ABA has long expressed concern to regulators that Basel III’s punitive treatment of mortgage servicing assets on bank books was driving the MSA business to entities not subject to the same prudential oversight.

The FSOC's annual report offered several other recommendations for greater stability, including increasing private activity in the mortgage market, raising awareness of interest rate risk, finalizing rules on money markets and resolving long-run fiscal imbalances.

Read the report.

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