MBA Objects to FHFA Non-Bank Servicer Proposal

Mortgage Bankers Association President and CEO David H. Stevens, has released a statement objecting to one of the three recommendations made this week by the Federal Housing Finance Agency (FHFA) in its annual report to Congress.  FHFA said it intends to ask Congress to allow it to add certain regulated counterparties, specifically non-bank servicers, to its examination schedule.

The agencies said that its regulated entities, Fannie Mae and Freddie Mac (the GSEs) and the Federal Home Loan Banks, contract with third parties for services to support the secondary mortgage market.  "While oversight of these counterparties is important to safety and soundness of FHFA's regulated entities" the reports says, "it is currently exercised only through contractual provisions where possible."   

FHFA says other federal safety and soundness regulators have statutory authority through the Bank Service Company Act to examine companies that provide services to depository institutions.  FHFA's proposal to do the same comes on the heels of recommendation to that effect from both the Government Accountability Office and the Financial Stability Oversight Council.

Stephens's statement on behalf of MBA says in part, "In its role as conservator, FHFA already has the ability to set GSE counterparty requirements on servicers and the CFPB's comprehensive mortgage servicing rules apply to all mortgage servicers.  By statutory design, this is also an area of significant state authority and examination activity.  Granting FHFA this additional authority absent preemption of duplicative state requirements would result in an even more burdensome regulatory regime in a space that has already seen spiraling costs due to regulatory duplication."

"Also, FHFA's mention of the Financial Stability Oversight Council's (FSOC) concern regarding the security of third party service providers is, in our view, irrelevant because the FSOC's recommendation was made specifically in the context of cybersecurity concerns, and does not reference mortgage servicers or any risks that are inherent to the business of servicing loans.

FHFA's report makes two other recommendations, both of which were supported in MBA's statement. The first is that Congress act to remove barriers to investor participation in the GSE's credit risk transfer transactions. The agency says efforts to transfer substantial amounts of credit risk to the private sector relies on ongoing investor interest in the GSEs' programs and the ability to purchase the credit risk.  FHFA said it has previously identified several statutory impediments to the marketing of this risk, which if addressed, could avoid unintended consequences for some types of investors and thus expand investor participation.