FSOC urges state regulators to coordinate standards to bolster nonbanks

Financial Stability Oversight Council FSOCThe Financial Stability Oversight Council released a report earlier this week urging state regulators to coordinate their prudential and corporate governance standards to ensure the stability of nonbanks in the mortgage servicing industry.

In its report, the council noted a substantial increase in 2013 in the transfer of mortgage servicing rights to nonbank companies as a result of enhanced capital requirements. By the end of 2013, banks held $5.4 trillion in unpaid balances—a decline of $758 billion from 2012. Nonbank holdings, however, rose by $806 billion to reach $1.7 trillion.

“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,” the report said. “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.”

Last year, the FSOC voted to subject several companies deemed “systemically important”—including AIG and Prudential—to tougher oversight and regulation as part of an effort to reduce risks to the U.S. financial system.

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