However, the council warned that because NMCs rely heavily on mortgage-related business, “shocks to the mortgage market can lead to significant deterioration in NMC income, balance sheets, and access to credit simultaneously.”
Other key vulnerabilities cited include NMCs’ heavy use of potentially cancellable financing, significant operational risks inherent to mortgage servicing, and concentration risks since they share many funding sources and subservicers.
“If these vulnerabilities result in NMCs being unable to carry out their critical functions at times of market stress, borrowers could experience disruption and harm, the agencies (Fannie Mae, Freddie Mac, and Ginnie Mae) and other credit guarantors could experience large losses, and there could be payment delays to stakeholders,” the report cautioned.
While regulators have taken some steps to mitigate NMC risks, the FSOC urged Congress to promote greater mortgage market stability by more directly addressing the identified issues.
The Mortgage Bankers Association agreed with analyzing NMCs’ crucial role but opposed adding “duplicative supervision requirements” that could reduce competition.
