The Government Accountability Office (GAO) said that nonbank mortgage servicers need more oversight from both the Federal Housing Finance Agency (FHFA) and the Consumer Financial Protection Bureau (CFPB) as the share of mortgages serviced by nonbanks has nearly quadrupled since 2012, according to a report released by the GAO on Monday.
Nonbank servicers are now servicing almost a quarter of the nation’s $9.9 billion in outstanding residential mortgage loans (about 24.2 percent) as of June 2015, having increased from 6.8 percent in 2012. But the GAO pointed out that while the nonbank servicers’ portfolios have skyrocketed in the last few years, their internal controls and operating systems have generally not advanced at the same rate—an issue the CFPB and others have also pointed out. The reason for the tremendous growth of nonbank servicers’ portfolios is largely the result of banks exiting the mortgage space following the financial crisis due to an ever-increasing number of delinquent loans, among other factors.
The report, titled “Nonbank Mortgage Servicers: Existing Regulatory Oversight Could Be Strengthened,” noted that the CFPB, which directly oversees nonbank servicers to make sure they are compliant with federal laws that govern consumer financial protection, does not have a full record of entities under its purview because it lacks a mechanism to develop a comprehensive list of nonbank servicers. The GAO also noted in the report that FHFA has indirect oversight over third parties that do business with Fannie Mae and Freddie Mac, but unlike bank regulators, FHFA lacks the statutory authority to examine the third parties and identify risks that could possibly affect Fannie Mae and Freddie Mac.
“Congress should consider granting FHFA authority to examine third parties that do business with the enterprises,” the GAO recommended. “In addition, CFPB should take steps to collect more data on the identity and number of nonbank servicers. FHFA agreed that there should be parity among financial institution regulators in oversight authority of regulated entities and third parties they do business with. CFPB agreed that more data could supplement existing information but noted that the current data limitation does not materially affect its work.”