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Financial Services Law Insights and Observations

GAO Report: Regulatory Oversight of Nonbank Servicers Could Be Stronger

CFPB Freddie Mac Fannie Mae Mortgage Servicing GAO Ginnie Mae

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On April 11, the Government Accountability Office (GAO) released a report titled, “Nonbank Mortgage Servicers: Existing Regulatory Oversight Could Be Strengthened.” The report analyzes data on the mortgage servicing market from June 2006 through June 2015 from Fannie Mae and Freddie Mac (collectively, the Enterprises), the Federal Reserve, and Ginnie Mae, as well as academic studies and research conducted by industry organizations, federal agencies, and others since the financial crisis. The report focuses in particular on the role of nonbank servicers in servicing privately securitized nonprime loans. According to the report, the percentage of mortgage loans serviced by nonbank servicers – which, according to market participants, tend to service more delinquent loans than banks – increased significantly from the first quarter of 2012 through the second quarter of 2015, but still account for less than a quarter of the overall mortgage servicing market. Concerns regarding the regulatory oversight of nonbank servicers are highlighted in the report, which comments on (i) the CFPB’s direct role in overseeing nonbank servicers’ compliance with federal consumer financial laws; (ii) state regulators’ various prudential and operational requirements for nonbank servicers; and (iii) Ginnie Mae and the Enterprises’ monitoring of nonbank servicer activities to manage risk exposure. According to the report, issues related to nonbank servicers’ “aggressive growth and insufficient infrastructure have resulted in harm to consumers, have exposed counterparties to operational and reputational risks and ... complicated servicing transfers between institutions.” Based on the findings summarized in the report, the GAO recommends that (i) Congress consider giving FHFA the authority to examine third parties doing business with the Enterprises; and (ii) the CFPB collect additional data regarding the identity and number of nonbank servicers.