GAO-16-278, Nonbank Mortgage Serivcers: Existing Regulatory Oversight Could Be Strengthened

NONBANK

MORTGAGE

SERVICERS

Existing Regulatory

Oversight Could Be

Strengthened

Report to Congressional Requesters

March 2016

GAO-16-278

United States Government Accountability Office

On April 14, 2016, this report was revised to insert “more” in the

recommendation on p. 49 to match the highlights and response to

agency comments and to modify the conclusions on p.48 to better align

with the recommendation.

United States Government Accountability Office

Highlights of GAO-16-278, a report to

congressional requesters

March 2016

NONBANK MORTGAGE SERVICERS

Existing Regulatory Oversight

Could Be

Strengthened

Why GAO Did This Study

As of June 2015, about a quarter of the

$9.9 trillion in outstanding home

mortgages in the United States were

serviced by nonbank servicers—non-

depository institutions that perform

such activities as collecting borrowers’

monthly payments and modifying loan

terms. After the 2007-2009 financial

crisis, an increase in delinquent loans

and other factors led some banks to

exit the mortgage servicing business

and created opportunities for increased

participation by nonbank entities. GAO

was asked to study the effects of the

growth of nonbank servicers in the

mortgage market. This report

examines, among other things, recent

trends in mortgage servicing and the

oversight framework in which nonbank

servicers operate. GAO analyzed

mortgage industry data from January

2006 through June 2015; reviewed

relevant laws and documents from

regulatory and housing agencies and

an industry group; conducted a

literature review; and interviewed

consumer groups, regulators and other

agency officials, and market

participants.

What GAO Recommends

Congress should consider granting

FHFA authority to examine third parties

that do business with the enterprises.

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.

What GAO Found

The share of home mortgages serviced by nonbanks increased from

approximately 6.8 percent in 2012 to approximately 24.2 percent in 2015 (as

measured by unpaid principal balance). However, banks continued to service the

remainder (about 75.8 percent). Some market participants GAO interviewed said

nonbank servicers’ growth

increased the capacity for servicing delinquent loans,

but they also noted challenges. For example, rapid growth of some nonbank

servicers did not always coincide with their use of more advanced operating

systems or effective internal controls to handle their larger portfolios—an issue

identified by the Consumer Financial Protection Bureau (CFPB) and others.

Share of Home Mortgages Serviced by Bank and Nonbank Servicers, from First Quarter 2012

through Second Quarter 2015

Note: GAO measured the quantity of mortgages using the total unpaid principal balance of all home

mortgage loans outstanding. GAO estimated the amount of mortgages serviced by banks as the sum

of the unpaid principal balance of mortgages that banks report holding for investment, sale, or trading

plus the unpaid principal balance of mortgages that banks report servicing for others. GAO estimated

the amount of mortgages serviced by nonbank servicers as the difference between the total amount

of mortgages outstanding and the amount serviced by banks.

Nonbank servicers are generally subject to oversight by federal and state

regulators and monitoring by market participants, such as Fannie Mae and

Freddie Mac (the enterprises). In particular, CFPB directly oversees nonbank

servicers as part of its responsibility to help ensure compliance with federal laws

governing mortgage lending and consumer financial protection. However, CFPB

does not have a mechanism to develop a comprehensive list of nonbank

servicers and, therefore, does not have a full record of entities under its purview.

As a result, CFPB may not be able to comprehensively enforce compliance with

consumer financial laws. In addition, the Federal Housing Finance Agency

(FHFA) is the safety and soundness regulator of the enterprises. As such, it has

indirect oversight of third parties that do business with the enterprises, including

nonbanks that service loans on the enterprises’ behalf. However, in contrast to

bank regulators, FHFA lacks statutory authority to examine these third parties to

identify and address deficiencies that could affect the enterprises. GAO has

previously determined that a regulatory system should ensure that similar risks

and services are subject to consistent regulation and that a regulator should have

sufficient authority to carry out its mission. Without such authority, FHFA may

lack a supervisory tool to help it more effectively monitor third parties’ operations

and the enterprises’ actions to manage any associated risks.

View GAO-16-278. For more information,

contact

Lawrance L. Evans Jr., (202) 512-

8678, or

[email protected]v

Page i GAO-16-278 Nonbank Servicers

Letter 1

Background 4

Nonbank Servicers’ Share of Mortgage Servicing Has Increased,

and Their Characteristics Vary 8

Nonbank Servicer Growth Poses Both Benefits and Challenges for

Market Participants and Consumers 20

Nonbank Mortgage Servicers Are Generally Subject to Federal,

State and Market Oversight, but Some Limitations Exist 31

Conclusions 48

Matter for Congressional Consideration 49

Recommendation for Executive Action 49

Agency Comments and Our Evaluation 49

Appendix I Objectives, Scope, and Methodology 53

Appendix II GAO Analysis of Market Concentration 65

Appendix III Nonbank Servicers Identified during Audit 68

Appendix IV Comments from the Consumer Financial Protection Bureau 88

Appendix V Comments from the Conference of State Bank Supervisors 91

Appendix VI Comments from the Federal Housing Finance Agency 94

Appendix VII Comments from Ginnie Mae 95

Appendix VIII GAO Contacts and Acknowledgements 96

Contents

Page ii GAO-16-278 Nonbank Servicers

Tables

Table 1: Shares of Home Mortgages Serviced by the 20 Largest

Servicers, 2012Q1 and 2015Q2 10

Table 2: Percentage of Home Mortgages in Ginnie Mae and

Enterprise MBS and Enterprise Portfolios Serviced by

Nonbank Servicers, as of Second quarter 2015 15

Table 3: Select Nonbanks Servicers Identified through Ginnie Mae

and the Enterprises by Location 69

Figures

Figure 1: Mortgage Servicing 5

Figure 2: Share of Home Mortgages Serviced by the 10 Largest

Nonbank Servicers, as of 2015Q2 12

Figure 3: Share of Home Mortgages Serviced by Bank and

Nonbank Servicers, from 2012Q1 to 2015Q2 13

Figure 4: Map of State, District and United States Territory

Mortgage Servicing Licensing Requirements as of June

2015 34

Figure 5: Percentage of Home Mortgages Owned or Guaranteed

by Entity, as of 2015Q2 40

Figure 6: Concentration in the Market for Mortgage Servicing, from

Fourth Quarter 2006 through Fourth Quarter 2014 67

Page iii GAO-16-278 Nonbank Servicers

Abbreviations

CFPB Consumer Financial Protection Bureau

CSBS Conference of State Bank Supervisors

Dodd-Frank Act Dodd-Frank Wall Street Reform and Consumer

Protection Act

DOJ Department of Justice

enterprises Fannie Mae and Freddie Mac

Federal Reserve Board of Governors of the Federal Reserve System

FHA Federal Housing Administration

FHFA Federal Housing Finance Agency

FSOC Financial Stability Oversight Council

FTC Federal Trade Commission

Ginnie Mae Government National Mortgage Association

HHI Herfindahl-Hirschman Index

HMDA Home Mortgage Disclosure Act

HUD Department of Housing and Urban Development

IMF Inside Mortgage Finance

LEI legal entity identifier

MBS mortgage-backed securities

MSR mortgage servicing rights

NIC National Information Center

NMLS Nationwide Multistate Licensing System

OCC Office of the Comptroller of the Currency

SNL SNL Financial

This is a work of the U.S. government and is not subject to copyright protection in the

United States. The published product may be reproduced and distributed in its entirety

without further permission from GAO. However, because this work may contain

copyrighted images or other material, permission from the copyright holder may be

necessary if you wish to reproduce this material separately.

Page 1 GAO-16-278 Nonbank Servicers

441 G St. N.W.

Washington, DC 20548

March 10, 2016

The Honorable Elizabeth Warren

United States Senate

The Honorable Elijah E. Cummings

Ranking Member

Committee on Oversight and Government Reform

House of Representatives

As of June 2015, about a quarter of the $9.9 trillion in outstanding home

mortgage loans in the United States were serviced by nonbank

servicers.

Historically, commercial banks, thrifts, and credit unions have

been the primary servicers of mortgage loans, performing activities such

as collecting payments from borrowers. However, rising mortgage

delinquencies during the 2007-2009 financial crisis and subsequent new

capital requirements have led banks to re-evaluate the benefits and costs

of retaining mortgages and the right to service them in their portfolios, and

some have reduced the percentage of their mortgage servicing business.

These dynamics have created opportunities for nonbank servicers to

increase their presence in the mortgage loan servicing market. Banks and

nonbank servicers are subject to different safety and soundness

regulation and different capital rules. As a result, mortgage market

We defined banks as bank holding companies, financial holding companies, savings and

loan holding companies, insured depository institutions, and credit unions, including any

subsidiaries or affiliates of these types of institutions. For the purposes of this report, we

refer to these entities collectively as “banks.” We define nonbank servicers as entities that

are not bank servicers.

In 2010, the Basel Committee (the global standard-setter for prudential bank regulation)

issued the Basel III framework—comprehensive reforms to strengthen global capital and

liquidity standards with the goal of promoting a more resilient banking sector. In 2013,

federal banking regulators adopted regulations to implement the Basel III based capital

standards in the United States, which generally apply to U.S. bank holding companies and

banks and are being phased in until 2019. Regulatory Capital Rules: Regulatory Capital,

Implementation of Basel III, Capital Adequacy, Transition Provisions, Prompt Corrective

Action, Standardized Approach for Risk-weighted Assets, Market Discipline and

Disclosure Requirements, Advanced Approaches Risk-Based Capital Rule, and Market

Risk Capital Rule, 78 Fed. Reg. 62018 (Oct. 11, 2013). For a more complete discussion of

Basel III, see GAO, Bank Capital Reforms: Initial Effects of Basel III on Capital, Credit,

and International Competitiveness, GAO-15-67 (Washington, D.C.: Nov. 20, 2014).

Letter

Page 2 GAO-16-278 Nonbank Servicers

participants and others have questioned the extent to which nonbank

servicers may pose additional risk to consumers and the market and

whether the existing oversight framework can ensure the safety and

soundness of nonbank servicers.

You asked us to conduct a study of the effect of the increased presence

of nonbank mortgage servicers in the mortgage market. This report

examines (1) the characteristics of nonbank mortgage servicers and the

recent trends in the mortgage servicing industry, (2) the effect of nonbank

servicers on consumers and the mortgage market, and (3) the oversight

framework for nonbank servicers.

To address these objectives, we reviewed studies by GAO and relevant

literature on nonbank servicers and the mortgage market. As a part of this

review, we selected academic studies and research by industry

organizations, federal agencies, and others since the 2007-2009 financial

crisis on the mortgage servicing market with a focus on the role of

nonbank servicers. We analyzed data for 2006 through June 2015 from

the Board of Governors of the Federal Reserve System (Federal

Reserve), Fannie Mae and Freddie Mac (the enterprises), the

Government National Mortgage Association (Ginnie Mae), and others to

identify trends in the mortgage servicing market and in particular nonbank

servicers. We assessed the reliability of these data by reviewing relevant

documentation, and we electronically tested the data for missing values,

outliers, and obvious errors, as well as interviewed knowledgeable

agency officials on how the data were prepared. We determined that data

were sufficiently reliable for our purposes. We reviewed relevant federal

regulations that govern the operations of mortgage servicers. We also

reviewed applicable guidance documents from the enterprises on the

operational and financial requirements of their servicers. In addition, we

reviewed examinations of nonbank servicers by the Bureau of Consumer

Financial Protection, also known as the Consumer Financial Protection

Bureau (CFPB) to learn about nonbank servicers’ deficiencies identified

by CFPB and as evidence of CFPB’s oversight. Furthermore, we

interviewed representatives from 10 nonbank servicers to obtain

information related to all three objectives. These included 9 of the 10

largest nonbank servicers (which serviced approximately 77.6 percent of

the total outstanding unpaid principal balance serviced by all nonbank

servicers as of December 31, 2014) and the largest nonbank sub-servicer

(a third-party mortgage servicer that has no fiduciary ties to or investment

Page 3 GAO-16-278 Nonbank Servicers

in the loans they service) based on outstanding unpaid principal balance

from Inside Mortgage Finance as of March 31, 2015.

In addition, we interviewed federal agency officials from CFPB and the

Federal Housing Finance Agency (FHFA) on their role in the regulatory

oversight of nonbank servicers and the enterprises, respectively. We also

interviewed officials from the Conference of State Bank Supervisors

(CSBS), an industry group that represents state financial regulators, as

well as state regulators from four states on their role in the oversight of

nonbank servicers.

In addition, we interviewed various mortgage market

participants regarding mortgage market trends and the potential effects of

mortgage servicing regulations as well as new and proposed financial

requirements for mortgage servicers. These participants include

representatives from the enterprises; Ginnie Mae; the Federal Housing

Administration (FHA) and other federal agencies that insure the loans in

Ginnie Mae-guaranteed mortgage-backed securities (MBS); industry

organizations that represent banks and mortgage servicers; two rating

agencies that rate MBS performance; third parties in the mortgage

servicing industry, such as mortgage servicing brokers and market

researchers; and companies that invest in or provide advice about

mortgage servicing rights (MSR), such as a real estate investment trust.

Further, we interviewed academics who have conducted research on the

nonbank mortgage servicing industry as well as consumer groups.

Appendix I provides a more detailed description of our scope and

methodology.

We conducted this performance audit from February 2015 to March 2016

in accordance with generally accepted government auditing standards.

For the purposes of this report, unpaid principal balance is the total remaining dollar

amount owed by borrowers on home mortgage loans in the United States or its affiliated

areas.

We selected a purposive, geographically diverse sample of state regulators to interview

based on the data from the Conference of State Bank Supervisors about state licensing

practices. We selected two states that issue licenses specific to mortgage servicing but

only one state (New York) responded; one state (California) that licenses mortgage

servicers through a general licensing authority that may allow mortgage activities in

addition to servicing; and two states (Colorado and Virginia) that do not require specific

licenses for nonbank servicers.

We selected a purposive, nongeneralizeable sample of relevant types of mortgage

market participants based on their knowledge, expertise and role in the mortgage

servicing industry.

Page 4 GAO-16-278 Nonbank Servicers

Those standards require that we plan and perform the audit to obtain

sufficient, appropriate evidence to provide a reasonable basis for our

findings and conclusions based on our audit objectives. We believe that

the evidence obtained provides a reasonable basis for our findings and

conclusions based on our audit objectives.

The U.S. housing finance system is complex and has numerous public

and private participants that operate in both primary and secondary

markets.

In the primary market, lenders make loans—known as

mortgage loans—to borrowers that are secured by property in a process

known as mortgage loan origination. Originators can choose to hold

mortgages in their own portfolios or sell them into the secondary market.

When loans are sold in the secondary market, they are generally

packaged together into pools and held in trusts pursuant to terms and

conditions set out in an underlying pooling and servicing agreement.

Pools of loans are the assets backing the MBS that are issued and sold to

investors, who are entitled to the cash flow generated by loans in the

trust.

After the loan origination process is complete, the loan must be serviced

until it is terminated—through payment in full or foreclosure (see fig. 1).

Servicing is inherent in all mortgage loans, but the right to service a

mortgage becomes a distinct asset—an MSR—when contractually

separated from the loan when the loan is sold or securitized. Originators

can service mortgage loans that they originate or purchase, or they can

sell the mortgage loans but retain the MSR. Servicers other than the

originator may also purchase MSR on securitized loans or may be hired

to service loans for others. Servicers perform various loan management

functions, including collecting payments from the borrower until the

mortgage debt is satisfied or terminated, sending borrowers monthly

account statements and tax documents, responding to customer service

For a more complete discussion of the primary and secondary mortgage markets, see

GAO, Housing Finance System: A Framework for Assessing Potential Changes,

GAO-15-131 (Washington, D.C.: Oct. 7, 2014) and Sean M. Hoskins, Katie Jones, and N.

Eric Weiss, Congressional Research Service, An Overview of the Housing Finances

System in the United States, R42995 (Washington, D.C.: Feb. 19, 2015).

Background

Mortgage Market Structure

and Participants

Page 5 GAO-16-278 Nonbank Servicers

inquiries, maintaining escrow accounts for property taxes and hazard

insurance, and forwarding monthly mortgage payments to the loan

owners. In the event that borrowers become delinquent on their loan

payments, servicers may also initiate a range of actions, from offering a

workout option to allow the borrower to stay in the home to foreclosure

proceedings. In most instances, the MSR is revocable by the owner, who

may terminate the right to service for cause or without cause.

Figure 1: Mortgage Servicing

Participants in the secondary market include the enterprises or other

institutions that issue MBS, Ginnie Mae, investors, and credit rating

agencies.

• The enterprises purchase mortgages that meet their underwriting

criteria. They either hold these mortgages in their own portfolios or

pool them into MBS, guaranteeing that investors will receive timely

principal and interest payments even if the borrowers become

delinquent. On September 6, 2008, FHFA placed the enterprises into

Page 6 GAO-16-278 Nonbank Servicers

conservatorship out of concern that their deteriorating financial

condition threatened the stability of financial markets. As a result, the

enterprises now have explicit federal backing. The enterprises have

guidelines for servicers that service the loans in their MBS programs.

• Ginnie Mae, a federal agency within the Department of Housing and

Urban Development (HUD), guarantees the timely principal and

interest payments to investors in securities issued by approved

institutions through its MBS program. Ginnie Mae-guaranteed MBS

are composed exclusively of mortgages issued by private institutions

with its approval and guaranteed by the Department of Veterans

Affairs or insured by the U.S. Department of Agriculture’s Rural

Housing Service, HUD’s Office of Public and Indian Housing, or FHA.

Ginnie Mae’s guarantee is explicitly backed by the full faith and credit

of the federal government. Ginnie Mae also has guidelines for

servicers that service the loans in its MBS program.

• Other private institutions, such as investment banks, may also issue

securities known as private-label MBS—that is, MBS not guaranteed

by Ginnie Mae or issued by the enterprises. Private-label MBS are

governed by pooling and servicing agreements specifying investors’

expectations for servicers.

• Credit rating agencies are companies that assess the creditworthiness

of debt securities, including MBS, and their issuers.

Various institutions service loans and can be classified into two groups:

banks and nonbanks. Bank and nonbank servicers have different basic

business models. Banks offer a variety of financial products to

consumers, including deposit products, loan products such as mortgage

and auto loans, and credit card products. In contrast, nonbank servicers

are generally involved only in mortgage-related activities and do not offer

deposit to consumers. Nonbank servicers may be involved in a variety of

mortgage activities, including servicing and originating loans, as well as

buying and selling MSR. For example, banks and other financial

companies may use nonbank servicers to service mortgages they

originate or own. Some nonbank servicers may also use nonbank sub-

servicers, which are third-party servicers that have no fiduciary ties to or

investment in the loans they service.

Page 7 GAO-16-278 Nonbank Servicers

CFPB enforces various federal laws and regulations governing mortgage

lending and servicing and consumer financial protection. CFPB was

created by the Dodd-Frank Wall Street Reform and Consumer Protection

Act (Dodd-Frank Act) and has rulemaking authority to implement

provisions of federal consumer financial law and primary enforcement

authority to assess compliance with various mortgage servicing rules.

CFPB also examines entities for compliance with federal consumer

financial laws, collects consumer complaints regarding debt collection and

other consumer financial products or services, and educates consumers

about their rights under federal consumer financial protection laws.

The Housing and Economic Recovery Act of 2008 established FHFA as

an independent agency to supervise and regulate the enterprises and the

Federal Home Loan Bank System.

FHFA has a statutory responsibility to

ensure that the enterprises operate in a safe and sound manner and that

the operations and activities of each regulated entity foster liquid,

efficient, competitive, and resilient national housing finance markets.

In addition to the federal regulators, state regulators supervise entities

that are chartered or licensed in their states to offer products and services

related to the mortgage industry. State regulators may also coordinate

some regulatory activities through their participation in various industry

organizations, including CSBS, a nationwide organization of state

financial regulators that helps coordinate state financial regulation,

including over mortgage servicing.

CSBS activities include the

development of legislative, regulatory, and supervisory solutions, which

states can choose whether and how to adopt.

Pub. L. No. 111-203, § 1021, § 1024, 124 Stat. 1376 1980, 1987 (2010) (codified at 12

U.S.C. § 5511, § 5514).

§ 1011, § 1024, 124 Stat.at 1964, 1987 (2010) (codified at 12 U.S.C. § 5491, § 5514).

Pub. L. No. 110-289, § 1101, 122 Stat. 2654, 2661 (codified at 12 U.S.C. § 4511).

CSBS regulator members also include members from the District of Columbia, Guam,

Puerto Rico, and the U.S. Virgin Islands.

Nonbank Servicer

Regulators

Consumer Financial Protection

Bureau

Federal Housing Finance

Agency

State Regulators

Page 8 GAO-16-278 Nonbank Servicers

As we have previously reported, the dramatic decline in the U.S. housing

market that began in 2006 precipitated a decline in the price of mortgage-

related assets, particularly mortgage assets based on nonprime loans in

2007.

Some financial institutions found themselves so exposed that they

were threatened with failure, and some failed because they were unable

to raise capital or obtain liquidity as the value of their portfolios declined.

Other institutions, ranging from the enterprises to large securities firms,

were left holding “toxic” mortgages or mortgage-related assets that

became increasingly difficult to value, were illiquid, and potentially had

little worth. Moreover, investors not only stopped buying private-label

securities backed by mortgages but also became reluctant to buy

securities backed by other types of assets. Because of uncertainty about

the liquidity and solvency of financial entities, the prices banks charged

each other for funds rose dramatically, and interbank lending conditions

deteriorated sharply. The resulting liquidity and credit crunch made the

financing on which businesses and individuals depend increasingly

difficult to obtain. By late summer of 2008, the ramifications of the

financial crisis ranged from the continued failure of financial institutions to

increased losses of individual wealth and reduced corporate investments

and further tightening of credit that would exacerbate the emerging global

economic slowdown.

GAO, Financial Institutions: Causes and Consequences of Recent Bank Failures,

GAO-13-71 (Washington, D.C.: Jan. 3, 2013).

Mortgage-Related Assets

and the 2007-2009

Financial Crisis

Nonbank Servicers’

Share of Mortgage

Servicing Has

Increased, and Their

Characteristics Vary

Page 9 GAO-16-278 Nonbank Servicers

From 2012 to the second quarter of 2015, the mortgage servicing market

appears to have become less concentrated while the share of mortgages

serviced by nonbank servicers appears to have increased.

Our analysis

suggests that the share of all mortgages serviced by nonbank servicers

increased from approximately 6.8 percent in the first quarter of 2012 to

approximately 24.2 percent in the second quarter of 2015.

Our analysis

also suggests that, when viewed at the national level, the mortgage

servicing industry was relatively unconcentrated in 2012 and has become

less concentrated since then.

Market concentration is an indicator of the

extent to which firms in a market can exercise power by raising prices,

reducing output, diminishing innovation, or otherwise harming customers

as a result of reduced competitiveness. In a concentrated market, a small

number of entities account for a large share of the market, which

increases their ability to exercise market power. In contrast, our analysis

suggests that the mortgage servicing industry is relatively

unconcentrated, at least when viewed at the national level. This finding

suggests that servicers have less ability to exercise market power and are

more likely to behave competitively.

A number of academic studies and

reports have also noted the increase in the share of mortgages serviced

For the purposes of this report, we consider mortgages to be home mortgage loans,

defined as loans secured by residential properties. These include loans secured by

properties with up to four units and farm houses, as well as home equity loans and home

equity lines of credit, but exclude other loans (i.e., those secured by multifamily,

commercial, and other farm properties).

We estimated that nonbank servicers were servicing about $729 billion of $10,643 billion

in total outstanding mortgages as of the first quarter of 2012 and about $2,392 billion of

$9,900 billion in the second quarter of 2015. These estimates are based on the difference

between total outstanding mortgages and the sum of (1) mortgages held for investment,

sale, or trading by bank servicers and (2) mortgages serviced for others by bank servicers.

We assumed that banks service the mortgages they hold for investment, sale, or trading.

To the extent that they do not do so, our estimates understate the amount of mortgages

serviced by nonbanks. Dollar amounts are adjusted for inflation and expressed in second

quarter 2015 dollars.

Our market concentration analysis was based on a widely accepted measure employed

by federal agencies to assess market concentration. A key assumption of our analysis is

that the mortgage servicing market is national in scope. However, the mortgage servicing

market may be segmented by regions, states, or other subnational areas, and the results

of our analysis may not reflect trends in mortgage servicing industry concentration in those

areas. The details of our analysis and its limitations can be found in appendix II.

Department of Justice and Federal Trade Commission guidelines, which we considered

in our analysis, classify markets into 3 types: unconcentrated, moderately concentrated,

and highly concentrated.

Nonbank Servicers’ Share

of Mortgages Has

Increased Since 2012

Page 10 GAO-16-278 Nonbank Servicers

by nonbank servicers, and some market participants have attributed the

decline in market concentration to this growth.

A growing number of the largest servicers are nonbank servicers. For

example, as of June 2015, the 20 largest servicers accounted for nearly

63 percent of all mortgages serviced.

Table 1 shows the shares of

mortgages serviced by the 20 largest servicers for the first quarter of

2012 and the second quarter of 2015. As an indicator of their larger role

in the market, the number of nonbank servicers among the 20 largest

mortgage servicers increased from 6 in the first quarter of 2012 to 9 in the

second quarter of 2015.

Table 1: Shares of Home Mortgages Serviced by the 20 Largest Servicers, 2012Q1 and 2015Q2

2012Q1

2015Q2

Rank

Servicer

Share (percent)

Servicer

Share (percent)

Wells Fargo & Company

18.0%

Wells Fargo & Company

17.1%

Bank of America Mtg. & Affiliates

16.5

Chase

9.3

Chase

10.8

Bank of America Mtg. & Affiliates

6.2

Citi

5.0

Nationstar Mortgage LLC

4.1

Ally Financial

3.6

Ocwen Financial Corporation

3.2

US Bank Home Mortgage

2.4

Citi

3.1

PHH Mortgage

1.8

US Bank Home Mortgage

2.9

SunTrust Mortgage, Inc.

1.5

Walter Investment Management

2.5

PNC Mortgage

1.3

PHH Mortgage

2.3

OneWest Bank

1.2

Quicken Loans, Inc.

1.8

Nationstar Mortgage LLC

1.0

SunTrust Mortgage, Inc.

1.5

HSBC North America

0.9

PennyMac Loan Services

1.4

Ocwen Financial

0.9

PNC Mortgage

1.3

For example, in a July 2014 report, the FHFA Office of Inspector General found that

among the 30 largest servicers, nonbank servicers were servicing 6 percent of mortgages

at the end of 2011 and 17 percent at the end of 2013. See Federal Housing Finance

Agency Office of Inspector General, FHFA Actions to Manage Enterprise Risks from

Nonbank Servicers Specializing in Troubled Mortgages, AUD-2014-014 (Washington,

D.C.: July 1, 2014).

Inside Mortgage Finance, Issue 2015:36 (Bethesda, Md.: Inside Mortgage Finance

Publications, 2015); Inside Mortgage Finance, Issue 2012:20 (Bethesda, Md.: Inside

Mortgage Finance Publications, 2012).

Page 11 GAO-16-278 Nonbank Servicers

BB&T Mortgage

0.9

BB&T Mortgage

1.2

MetLife Home Loans

0.9

LoanCare, LLC

1.2

Walter Investment Management

0.8

Provident Funding

0.8

Flagstar Bank

0.7

Fifth Third Bank

0.8

Fifth Third Bank

0.7

Flagstar Bank

0.8

Capital One Financial

0.7

Caliber Home Loans

0.8

American Home Mortgage Servicing

0.7

HSBC North America

0.6

Aggregate share of the 20 largest servicers

70.5

62.6

Legend: shading = nonbank servicer

Source: GAO analysis of Inside Mortgage Finance data. | GAO-16-278

Note: We used data from Inside Mortgage Finance to determine the shares of mortgages serviced by

the 20 largest servicers, based on unpaid principal balance, and the number of nonbank servicers

among the 20 largest servicers for the first quarter of 2012 and the second quarter of 2015. We

defined banks as bank holding companies, financial holding companies, savings and loan holding

companies, insured depository institutions, and credit unions, including any subsidiaries or affiliates of

these types of institutions. We define nonbank servicers as entities that are not bank servicers.

Correspondingly, we found that a few nonbank servicers account for the

majority of the total share of mortgages serviced by nonbank servicers.

Our analysis shows that the 10 largest nonbank servicers were servicing

about 76.4 percent of the share of mortgages serviced by all nonbank

servicers as of the second quarter of 2015 (see fig. 2).

Inside Mortgage Finance, Issue 2015:36.

Page 12 GAO-16-278 Nonbank Servicers

Figure 2: Share of Home Mortgages Serviced by the 10 Largest Nonbank Servicers,

as of 2015Q2

Note: We used the unpaid principal balance of outstanding home mortgage loans to estimate the

shares of home mortgage loans serviced by bank and nonbank servicers for the second quarter of

2015. We defined banks as bank holding companies, financial holding companies, savings and loan

holding companies, insured depository institutions, and credit unions, including any subsidiaries or

affiliates of these types of institutions. We define nonbank servicers as entities that are not bank

servicers. We measured the quantity of home mortgage loans using the total unpaid principal balance

of all outstanding home mortgage loans. We estimated the amount of home mortgage loans serviced

by banks as the sum of the unpaid principal balance of home mortgage loans that banks report

holding for investment, sale, or trading plus the unpaid principal balance of home mortgage loans that

banks report servicing for others. We estimated the amount of home mortgage loans serviced by

nonbank servicers as the difference between the total amount of outstanding home mortgage loans

and the amount serviced by banks. We estimated the share of home mortgage loans serviced by

nonbank servicers as the percentage of total unpaid principal balance serviced by nonbank servicers.

We then estimated the amount of home mortgage loans being serviced by the 10 largest nonbank

servicers using data from Inside Mortgage Finance on the 100 largest mortgage servicers. We

estimated the share of home mortgage loans being serviced by the 10 largest nonbanks as a

percentage of the unpaid principal balance being serviced by all nonbank servicers.

Although our analysis shows that bank servicers’ share of aggregate

mortgages has decreased since the first quarter of 2012, banks still

service a majority of mortgages. Figure 3 shows that banks serviced

about 75.8 percent of mortgages as of the second quarter of 2015.

Further, although we found that the aggregate share of mortgages

serviced by nonbank servicers has grown, the largest bank servicers’

individual shares remain much larger than the individual shares of the

largest nonbank servicers. For example, the largest bank servicer

Page 13 GAO-16-278 Nonbank Servicers

serviced about 17.1 percent of mortgages as of the second quarter of

2015, compared to about 4.1 percent of mortgages for the largest

nonbank servicer (see table 1).

An exception to this trend was the

subprime segment of the mortgage servicing industry, where one

nonbank servicer accounted for over 28 percent of all subprime

mortgages serviced in 2014—exceeding the amount serviced by the two

largest bank servicers combined.

Figure 3: Share of Home Mortgages Serviced by Bank and Nonbank Servicers, from

2012Q1 to 2015Q2

Note: We used the unpaid principal balance of outstanding home mortgage loans to estimate the

shares of home mortgage loans serviced by bank and nonbank servicers for each quarter for the

Inside Mortgage Finance, Issue 2015:36.

Inside Mortgage Finance, Mortgage Market Statistical Annual 2015 Yearbook,

(Bethesda, Md: Inside Mortgage Finance Publications, 2015). This nonbank servicer has

been selling its MSR for Ginnie Mae, Fannie Mae, and Freddie Mac MBS since December

2014.

Page 14 GAO-16-278 Nonbank Servicers

period from 2012Q1 to 2015Q2. We defined banks as bank holding companies, financial holding

companies, savings and loan holding companies, insured depository institutions, and credit unions,

including any subsidiaries or affiliates of these types of institutions. We define nonbank servicers as

entities that are not bank servicers. We measured the quantity of home mortgage loans using the

total unpaid principal balance of all outstanding home mortgage loans. We estimated the amount of

home mortgage loans serviced by banks as the sum of the unpaid principal balance of home

mortgage loans that banks report holding for investment, sale, or trading plus the unpaid principal

balance of home mortgage loans that banks report servicing for others. We estimated the share of

home mortgage loans serviced by bank servicers as the percentage of the total unpaid principal

balance serviced by bank servicers. We estimated the amount of home mortgage loans serviced by

nonbank servicers as the difference between the total amount of outstanding home mortgage loans

and the amount serviced by banks. We estimated the share of home mortgage loans serviced by

nonbank servicers as the percentage of the total unpaid principal balance serviced by nonbank

servicers.

While nonbank servicers account for less than a quarter of the overall

mortgage servicing market, their share of particular market segments has

increased significantly. Specifically, as of the second quarter of 2015,

nonbank servicers serviced 35 percent of mortgages in Ginnie Mae and

enterprise MBS and enterprise-owned portfolios (see table 2) compared

to their overall share of 24.2 percent. Additionally, the share of mortgages

in Ginnie Mae MBS serviced by nonbank servicers, as measured by the

unpaid principal balance, grew to about 42 percent in the second quarter

of 2015, up from about 25 percent in the fourth quarter of 2006.

Similarly, nonbank servicers own the majority of the MSR related to

private-label securities, although this market segment is relatively small

as discussed later. According to one 2015 study, nonbank servicers own

the MSR associated with approximately 74 percent of loans in pools of

private-label securities.

On the basis of our analysis, we estimate that there were about 640 nonbank servicers

eligible to service for Ginnie Mae, Fannie Mae, or Freddie Mac for this period. We define

an eligible nonbank servicer as one that was servicing, or was approved to service,

mortgages in Ginnie Mae or enterprise MBS or enterprise-owned portfolios as of the

second quarter of 2015.

Mortgage Bankers Association and PricewaterhouseCoopers, The Changing Dynamics

of the Mortgage Servicing Landscape, (Washington, DC: June 2015).

Page 15 GAO-16-278 Nonbank Servicers

Table 2: Percentage of Home Mortgages in Ginnie Mae and Enterprise MBS and

Enterprise Portfolios Serviced by Nonbank Servicers, as of Second quarter 2015

Percentage of unpaid principal

balance serviced

Ginnie Mae-guaranteed MBS

41.9%

Fannie Mae MBS and portfolios

37.4

Freddie Mac MBS and portfolios

25.2

All Ginnie Mae and enterprise MBS and enterprise

portfolios

35%

Source: GAO analysis of data from Ginnie Mae, Fannie Mae, and Freddie Mac. | GAO-16-278

Note: We defined banks as bank holding companies, financial holding companies, savings and loan

holding companies, insured depository institutions, and credit unions, including any subsidiaries or

affiliates of these types of institutions. We define nonbank servicers as entities that are not bank

servicers. Ginnie Mae and Fannie Mae each provided us with data on the total unpaid principal

balance of mortgages serviced by all of their approved servicers and their approved nonbank

servicers, which we used to calculate the percentage of home mortgages serviced by nonbank

servicers. We calculated this percentage for Freddie Mac using servicer-level data on unpaid principle

balance provided to us by Freddie Mac. We used an SNL Financial list of banks as well as Freddie

Mac data fields that indicated institution type, to determine which of Freddie Mac’s servicers met our

definition for bank and nonbank servicers.

This percentage was calculated using all home mortgage loans in Ginnie Mae and enterprise MBS

and enterprise portfolios that nonbanks were servicing as of the section quarter of 2015.

FHFA officials and representatives from Freddie Mac and one nonbank

servicer we interviewed suggested that the increase in the share of

mortgages serviced by nonbank servicers occurred as a result of the

increase in delinquent loans following the 2007-2009 crisis. Further, those

officials and representatives, as well as studies we reviewed, cited

nonbank servicers’ willingness and capability to service delinquent loans

during the financial crisis as one reason for their growth (as discussed

later, some nonbank servicers specialize in servicing delinquent loans),

explaining that many banks transferred MSR for delinquent portfolios to

nonbank servicers during this time.

Additionally, we previously reported

We have ongoing work to further study the potential factors influencing banks’ decisions

about whether to hold or sell MSR.

Page 16 GAO-16-278 Nonbank Servicers

that the financial crisis was associated with significant increases in

delinquencies, mortgage defaults, and foreclosures.

Some market participants we interviewed cited several reasons why the

growth in the share of mortgages serviced by nonbank servicers might

slow in the future. For example, they cited declining delinquency rates

and increased regulatory scrutiny of MSR transfers that could reduce the

number and size of MSR transfers from bank to nonbank servicers.

Others we interviewed also said they generally expect banks to service

more mortgages in the future as the housing market continues to

stabilize. For example, FHFA officials explained that they expect banks to

increase their performing loan servicing in the future due to improved

economic conditions and better quality loans originated since the 2007-

2009 financial crisis. Likewise, Fannie Mae representatives also said they

expect some banks to begin servicing more loans, particularly performing

loans.

Similarly, representatives from two market research firms said

that regional and midsized banks are showing renewed interest in buying

MSR. Conversely, small and midsized nonbank servicers we interviewed

said they did not expect banks to increase servicing given rising servicing

costs associated with various new regulations, including those issued by

CFPB, and Basel III capital standards, which make owning MSR more

expensive for banks.

While nonbank servicers are non-deposit-taking institutions with a specific

focus on servicing mortgage loans, these entities vary across a number of

different characteristics, including revenue sources, funding sources,

costs, and their area of specialization. Some examples of the diverse

range of institutions in the mortgage servicing industry include the

following:

• small servicer-only companies, some of which specialize in specific

functions such as servicing or sub-servicing delinquent loans;

• full-service mortgage finance companies that also originate loans;

GAO, Financial Regulatory Reform: Financial Crisis Losses and Potential Impacts of the

Dodd-Frank Act, GAO-13-180 (Washington, D.C.: Jan. 16, 2013).

We consider performing loans to be loans that are not delinquent.

For a more complete discussion of Basel III, see GAO-15-67.

Characteristics of

Nonbank Servicers Vary

Page 17 GAO-16-278 Nonbank Servicers

• entities owned by investors such as real estate investment trusts,

hedge funds or private equity funds;

• subsidiaries or affiliates of large nonbanks, including financial and

nonfinancial firms;

• companies that acquire MSR and use sub-servicer arrangements to

service the loans; and

• publicly traded companies.

Appendix III provides a list of nonbank servicers we identified in the

course of our audit work.

We found that nonbank servicers’ largest source of revenue is typically

servicing fees, but their sources of revenue vary. Nonbank servicers

generally collect monthly fees based on a percentage of the remaining

unpaid principal balance on each loan serviced, although some nonbank

servicers, including three we interviewed, may instead receive a flat fee

per loan when sub-servicing for others. Representatives from several

nonbank servicers we interviewed also discussed relying on other

sources of revenue, including ancillary fees and float income.

Nonbank

servicers with more diversified operations can also earn revenue from a

range of other activities, including loan origination, investment, and

consulting.

Likewise, we found that nonbank servicers’ funding sources can vary.

Nonbank servicers we interviewed said they use equity, debt, and lines of

credit to help fund their operations. For example, some nonbank servicers

are publicly traded and can use equity to fund their operations. In

addition, nonbank servicers can fund their operations by securing lines of

credit, issuing bonds, or undertaking a number of other capital and

liquidity-raising alternatives. The majority of the 10 nonbank servicers we

Ancillary fees are fees imposed on borrowers for events such as late payment or

bounced checks. Servicers earn float income by investing principal and interest payments

they receive from borrowers for a short period before remitting them to the loan holder.

For example, borrowers might make their payment on the first of the month, but the

servicer does not remit these payments to the loan holder until the 25th of the month. In

the interim, the servicer may place the payments in investment-grade assets and keep the

investment income for itself.

Revenue, Funding Sources,

and Costs

Page 18 GAO-16-278 Nonbank Servicers

interviewed said they also use lines of credit to fund various operations,

including mortgage originations and MSR purchases, and to advance

principal and interest payments to investors in cases where borrowers fail

to make monthly payments.

Regulators and other market participants

agreed that nonbank servicers can experience higher funding costs

compared to bank servicers. They said that unlike bank servicers,

nonbank servicers do not have access to customer deposits, which are a

cheaper source of funding than other capital and money market

alternatives.

Representatives from most of the nonbank servicers we interviewed also

largely agreed that personnel costs are their main expense, although

costs can vary based on a servicer’s business model and size. As we

discuss later, some nonbank servicers specialize in delinquent loans and

therefore may experience higher employee costs related to servicing

those loans. For instance, the Urban Institute reported that delinquent

loans are typically more difficult and costly to service because such loans

require more labor-intensive, direct interactions with borrowers to ensure

that they are offered appropriate options to remain in their homes.

number of servicers we interviewed also said that technology can be a

large cost. To the extent that some technology costs are fixed, these

would disproportionally affect smaller servicers. Similarly, smaller

nonbanks may be disproportionately affected by regulatory compliance

costs, such as those associated with new servicer guidelines and

enhanced scrutiny of the foreclosure process.

A number of nonbank servicers specialize in servicing delinquent loans,

according to various market participants, but others do not. For example,

representatives from two nonbank servicers said that they were able to

expand their businesses during the 2007-2009 financial crisis by

specializing in delinquent loans as delinquency rates rose to historic

levels. As a result of nonbank servicers’ willingness to service delinquent

loans, larger portions of the loans they service tend to be delinquent

relative to the loans serviced by their banking counterparts. For example,

In some cases, such as for Ginnie Mae-guaranteed MBS and some enterprise-issued

MBS and enterprise-owned loans, servicers are required to remit scheduled principal and

interest payments even if borrowers fail to make their monthly mortgage payments. These

are often referred to as advance payments.

Pamela Lee, Nonbank Specialty Services: What’s the Big Deal? Urban Institute

(Washington, D.C.: Aug. 2, 2014).

Specialization

Page 19 GAO-16-278 Nonbank Servicers

the average number of delinquent loans—as a percentage of loans

serviced—in Ginnie Mae and enterprise MBS and enterprise-owned

portfolios was higher for nonbank than bank servicers as of the second

quarter of 2015.

Specifically, for the enterprises, the delinquency rate for

loans serviced by nonbank servicers was .84 percentage points higher on

average than those serviced by bank servicers.

Similarly, the average

delinquency rate for loans serviced by nonbank servicers for Ginnie Mae

was 1.4 percentage points higher than those serviced by bank

servicers.

For nonbank servicers of Ginnie Mae MBS, the specialization

in delinquent loans is a continuation of a multiyear pattern. Specifically,

Ginnie Mae data show that for each year from the fourth quarter of 2007

through the second quarter of 2015, nonbank servicers of Ginnie Mae

MBS have had higher average delinquency rates than bank servicers.

However, representatives from other nonbank servicers and market

participants we interviewed said that many nonbank servicers do not

consider themselves specialty servicers nor do they actively seek to

service delinquent loans. Moreover, while delinquent loans are a common

area of specialization for nonbank servicers, others focus on specific loan

products or geographic locations where they have developed expertise

and, on the basis of the specialization, may provide support to larger bank

and nonbank servicers.

For the purposes of this analysis, delinquent loans were loans that were 90 days or

more past due or in foreclosure for Ginnie Mae and Freddie Mac, and 3 months or more

past due or in foreclosure for Fannie Mae.

For this analysis, delinquent loans were loans that were 90 days or more past due or in

foreclosure for Ginnie Mae and Freddie Mac, and 3 months or more past due or in

foreclosure for Fannie Mae. Average delinquency rates for bank and nonbank servicers

are calculated by averaging the delinquency rates—by number of loans serviced—of each

servicer in each servicer category. Ginnie Mae and Fannie Mae provided us with the

delinquency rates of their bank and nonbank servicers. We calculated the delinquency

rates for Freddie Mac bank and nonbank servicers using servicer-level data provided to us

by Freddie Mac. We defined banks as bank holding companies, financial holding

companies, savings and loan holding companies, insured depository institutions, and

credit unions, including any subsidiaries or affiliates of these types of institutions.

Ginnie Mae officials noted that nonbank servicers’ higher delinquency rates may be only

partially due to their specialization. Higher delinquency rates may also reflect nonbank

servicers’ unwillingness or inability to purchase delinquent loans out of Ginnie Mae-

guaranteed loan pools. According to Ginnie Mae officials, banks often do this with Ginnie

Mae-guaranteed MBS, which has the effect of lowering the delinquency rates for their

servicing portfolio.

Page 20 GAO-16-278 Nonbank Servicers

The growth of nonbank servicer participation in the mortgage servicing

industry since the financial crisis has produced some benefits for

consumers and other market participants. While the extent of the benefits

varies according to the individual servicer and is not necessarily due to

differences between banks and nonbanks, many market participants said

that the growth of nonbank servicers has increased the capacity for

servicing delinquent loans and that their expertise may have also

produced additional benefits for some borrowers. Evidence also suggests

that the growth of nonbanks has helped increase liquidity in the market for

MSR, which supports mortgage markets more generally.

Increased Capacity for Delinquent Loan Servicing. The increased

participation of nonbank servicers capable of servicing delinquent loans

may have contributed to improved outcomes for some of these loans

since the financial crisis. Market participants we interviewed noted that in

the years after the 2007-2009 financial crisis, existing bank servicers

lacked the capacity and capability to effectively service the large volume

of delinquent loans that emerged. Moreover, some servicers were unable

to effectively handle the higher level of interaction with borrowers required

by delinquent loans. As a result, the mortgage servicing industry

experienced poorly designed loan modification systems as well as errors

and deficiencies in foreclosure processing. For example, in 2011 and

2012, in response to critical weaknesses in bank servicers’ foreclosure

activities, federal banking regulators issued formal consent orders against

16 bank servicers to ensure safe and sound mortgage servicing; address

weaknesses identified in foreclosure reviews; and remediate harm to

Nonbank Servicer

Growth Poses Both

Benefits and

Challenges for Market

Participants and

Consumers

Nonbank Servicer Growth

Has Improved Servicing

Capacity for Delinquent

Loans and Increased

Liquidity

Page 21 GAO-16-278 Nonbank Servicers

borrowers.

A 2014 study by the Urban Institute noted that this capacity

and capability gap was addressed, in part, by the increased participation

of nonbank specialty servicers whose servicing platforms were more

effective in handling distressed loans. As a result, some nonbank

servicers may have contributed to improved consumer outcomes for

some delinquent loans. For example, a 2014 study on loan modifications

noted that borrowers benefited from reduced payments, interest rates,

and loan balances offered by nonbank servicers, which could potentially

reduce the likelihood of foreclosure.

However, their empirical evidence

on the relative performance of nonbanks in servicing delinquent loan is

not definitive. For instance, one study we reviewed found that borrowers

in delinquency were more likely to experience positive outcomes when

their servicer was a nonbank, including the borrower making a payment

on a loan that had been in default, receiving offers of modifications with

principal decreases, and receiving offers for second modifications. Over

time, however, the study found that banks have increased their propensity

to offer interest rate modifications and greater payment reductions.

However, this study was based on privately securitized nonprime loans

and therefore cannot speak to outcomes for delinquent prime loans or

loans outside of private-label securities. The study also contains a

number of other limitations that require caution in the interpretation of the

In addition, in February 2012, the Departments of Justice, Treasury, and Housing and

Urban Development and state banking regulators along with 49 state attorneys general,

reached a settlement with the country’s largest mortgage servicers. See United States v.

Bank of America Corp., No. 1:12-cv-00361 (D.D.C. Apr. 4, 2012). This agreement, known

as the National Mortgage Settlement, provided approximately $25 billion in relief to

distressed borrowers in states that signed onto the settlement and directed payments to

participating states and the federal government.

Carolina K. Reid, Michael J. Collins, and Carly Urban, “Servicer Heterogeneity: Does

Servicing Matter for Loan Cure Rates?” University of California, Berkeley: Fisher Center

for Real Estate and Urban Economics Working Paper Series (2014). The study controlled

for borrower, loan, and market characteristics and investigated the difference in outcomes

for borrowers with delinquent subprime mortgages in private-label securities whose

servicers were banks and nonbank servicers.

Page 22 GAO-16-278 Nonbank Servicers

results.

Moreover, representatives from consumer groups we spoke with

said that they did not notice a difference in servicing quality between bank

and nonbank servicers for borrowers with delinquent loans, and they said

that outcomes depended on the expertise and quality of the individual

company.

Increased Liquidity. Nonbank servicers have contributed to liquidity in

the secondary mortgage market since the financial crisis by broadening

participation in the market for MSR, which benefits banks and other

originators looking to sell mortgage assets. Additional participants in the

market for MSR generally contribute to a more liquid market, where large

MSR transactions can be executed with relative ease and at low costs. A

liquid market for MSR benefits buyers and sellers of MSR directly by

providing a mechanism to transact effectively in MSR and raise liquidity. It

also indirectly facilitates sales of whole loans to investors that do not want

the associated servicing responsibilities or that want the option to sell the

servicing rights in the future.

Moreover, the entry of new, diverse groups

of investors, such as hedge funds, real estate investment trusts, and

specialty servicers, has generated increased liquidity in MSR associated

with a wide variety of loan products. For example, some nonbank

servicers specialize in acquiring MSR related to nonprime mortgage loans

originated prior to 2008 or, as discussed previously, delinquent loans that

are more demanding to service. Such institutions were instrumental in

enhancing the ability of the market to absorb the supply of MSR that

resulted from banks’ desire to decrease the volume of nonprime and

For example, the study does not include a significant segment of the market—prime and

portfolio loans—that is largely serviced by banks. The data used for the study are based

on privately securitized subprime and Alt-A loans. Thus, there is a potential selection bias

in that the sample used could be dominated by nonbank servicers. The authors do not

provide any summary statistics on the share of nonbank servicers compared to bank

servicers in the sample. Furthermore, the authors indicate they identified nonbank

servicers through news articles in trade publications, which may create additional issues

with the sample used to conduct the empirical analysis. Moreover, since the results are

based on a convenience sample, they cannot be used to draw inferences about all Alt-A

loans.

The ability of originators to sell loans into secondary markets generates funds to support

additional loan origination. A liquid market for MSR facilities this process, as some

investors seeking to purchase mortgages do not have servicing platforms or are otherwise

uninterested in servicing rights. These entities therefore rely on a liquid market for selling

the MSR associated with the loan or will purchase only the loan from originators, leaving

the MSR for another entity. As a result, nonbanks servicers, by supporting secondary

mortgage market activity, ultimately benefit consumers.

Page 23 GAO-16-278 Nonbank Servicers

distressed loans in their servicing portfolios, likely improving the liquidity

of the market. Further, diversity in the types of servicers in the market

produces competition between entities with varying levels of expertise

and tolerance for risk. This competition can result in more efficient pricing

in the market for MSR, specifically MSR markets for delinquent loans and

unconventional loans. Ginnie Mae’s 2014 report noted that the rising

prominence of nonbank servicers enhanced market liquidity by offsetting

the decreased participation of bank servicers.

The increased participation of nonbank servicers in mortgage servicing

has created benefits but also poses risks to consumers, the enterprises,

Ginnie Mae, and others. For example, some challenges are related to the

business models and operational systems of particular nonbank

servicers, such as those stemming from certain nonbanks’ heightened

vulnerability to MSR price movements. Other challenges are related to

the transfers of MSR that occur among banks and nonbanks servicers,

which can result in violations of consumer protection laws and other

regulations. Because there is considerable variation in the types of

servicers in the market, it is important to note that in many cases the risks

to market participants vary by individual servicer as opposed to whether

the servicer is a bank or nonbank. Nevertheless, a number of challenges

exist, some of which are specific to certain types of nonbanks and some

of which are more general servicer challenges that have been heightened

by nonbank growth.

Several market participants and one state regulator we spoke with said

that operational challenges at some nonbanks were caused by overly

rapid growth, particularly after the financial crisis, which strained some

nonbank servicers’ operational capabilities and finances. Concerns have

been raised by the FHFA Office of Inspector General and others that

recent growth at some specialty servicers could result in servicing issues

for customers, including where support infrastructure may not have

adequately kept pace with expanding portfolios.

In particular, some

market participants told us that some nonbank servicers may be more

Ginnie Mae, An Era of Transformation (September 2014).

See Federal Housing Finance Agency (FHFA), Office of Inspector General, FHFA

Actions to Manage Enterprise Risks from Nonbank Servicers Specializing in Troubled

Mortgages, AUD-2014-014 (Washington, D.C.: July 1, 2014).

Growth of Nonbanks

Presents Some Risks to

Consumers and Other

Market Participants

Rapid Growth and Immature

Operational Systems

Page 24 GAO-16-278 Nonbank Servicers

susceptible to difficulties due to less mature infrastructures relative to

banks for tasks such as managing regulatory compliance, risks, and

internal controls. Weak internal controls and compliance programs can

result in harm to consumers, such as problems or errors with account

transfers, payment processing, and loss mitigation processing. Ginnie

Mae officials said that newer nonbank servicers, which are often created

and financed by private investors and seek to acquire significant portfolios

of servicing rights, may underestimate the operational requirements

involved in servicing large portfolios, such as answering high volumes of

customer-service inquiries or reaching out to many borrowers with

delinquent loans. Servicers acquiring MSR may encounter a number of

issues that require effective systems and knowledge of the state and

federal laws and requirements as they relate to servicing mortgages,

which may challenge the expertise of newer servicers. Smaller nonbank

servicers may also face difficulties related to their ability to manage

operational challenges, although this challenge may be due to the size of

the entity and may not be unique to nonbank servicers.

Issues related to aggressive growth and insufficient infrastructure have

resulted in harm to consumers, have exposed counterparties to

operational and reputational risks and, as we discuss later in this report,

complicated servicing transfers between institutions. We examined

servicer reviews by the enterprises and identified differences in the

degree of operational issues experienced by bank and nonbank

servicers.

Specifically, the enterprises on average found more issues

considered high-risk at nonbanks—such as insufficient monitoring of loan

accounts—than at banks. Moreover, both enterprises gave more “needs

improvement” or “unsatisfactory” assessments to reviewed nonbank

servicers compared to banks. In addition, CFPB’s examinations found

servicing problems at nonbanks due to a lack of robust compliance

Each enterprise reviewed these entities using its own set of review criteria. In this report,

we do not attempt to assess the appropriateness of these criteria. Each enterprise’s

examinations identified individual findings and categorized them based on their riskiness,

as well as determining overall assessments of servicer performance (e.g., unsatisfactory;

needs improvement; satisfactory). One enterprise assigned an overall assessment to the

servicer, while the other assessed different areas of servicer performance. While each

enterprise used different language in its assessment of servicers, for the purposes of

comparison we have normalized the language here.

Page 25 GAO-16-278 Nonbank Servicers

systems.

However, a credit rating agency and one servicer we spoke

with said that nonbank servicers had improved their operational systems

over time.

While issues with transfers of MSR are not unique to nonbanks, their

incidence has increased since the financial crisis, in part due to

increasing numbers of servicing transfers involving nonbanks and

potentially exacerbated by the immature operational systems for specific

servicers. Ineffective transfers can have negative consequences for

investors and borrowers. The transfer process is complex and requires

management and communication by both parties to the transfer. Among

other requirements during the transfer process, the servicers transferring

MSR must provide the servicers receiving them with borrowers’ complete

documentation. The new servicer also must abide by agreements (either

established or in progress) between the borrower and the previous

servicer. In addition, both parties must communicate with borrowers to

help ensure that they understand the status of their loan and have timely

and accurate information regarding loss mitigation procedures. Issues

can emerge for borrowers when either servicer fails to fulfill these

requirements, and when other issues—such as incompatible

technological systems—produce errors. For example, CFPB has

observed that if the transfer process is not handled properly, consumers

may find that their servicer could miss documentation or that the servicer

did not credit payments on time.

As nonbanks engaged in significant acquisitions of MSR from other

servicers during and after the financial crisis, a combination of errors and

improper actions on the part of both transferring and receiving servicers

led to borrowers experiencing harm, including losing their homes to

foreclosure in some cases. While some servicers have increased their

ability to properly manage these complex transactions, variability in

servicer quality across nonbanks receiving the transfers remains an area

In the fall 2015 issue of the Consumer Financial Protection Bureau’s (CFPB) publication

that provides the public and the financial industry with a summary of any unfair, deceptive,

abusive acts or practices, CFPB summarized its examination findings for both bank and

nonbank servicers. See CFPB, Supervisory Highlights, Issue 9, Fall 2015 (Washington,

D.C.: Nov. 3, 2015).

Effective January 2014, CFPB established new mortgage servicing rules that included

rules obligating bank and nonbank servicers to maintain certain policies and procedures

regarding the transfer of loans. 12 C.F.R. § 1024.38.

Mortgage Servicing Transfer

Issues

Page 26 GAO-16-278 Nonbank Servicers

of focus for regulators, as discussed later. According to regulators,

transfer errors or other issues can be especially harmful for borrowers in

loss mitigation proceedings, whereby a borrower may apply for payment

relief or request new terms for his or her loan. For example, CSBS

officials said that in MSR transfers that resulted from servicers’ failure,

some borrowers lost contact with their servicers, and their new servicers

did not always receive or adhere to borrowers’ existing loss mitigation

agreements with the previous servicer. In some cases, these types of

transfer errors may have resulted in some borrowers improperly losing

their homes to foreclosure.

While nonbank servicers employ a range of business characteristics,

some nonbanks are more susceptible to risks that can lead to operational

problems and ultimately broader effects, including effects on investors,

consumers and other servicers. For example, liquidity challenges are

more pronounced for nonbanks, as many face expensive alternatives for

external financing and do not have access to consumer deposits, which

can be a cheaper and more reliable source of funding. In particular, many

nonbank servicers rely on short-term credit facilities, such as lines of

credit and advances with borrowing limits. In some cases, nonbank

servicers depend on a single investor or a few creditors and are therefore

particularly vulnerable to a withdrawal of funds. In addition, some

servicers must sometimes advance principal and interest on delinquent

loans to investors without the revenue generated by the underlying loan.

Various market participants we spoke with indicated that some nonbank

servicers might face funding liquidity risks, in part due to market volatility

because of several features of their business models and expensive

external funding alternatives.

However, some nonbank servicers have

better access to liquidity to support their operations, including publicly

traded entities or those affiliated with larger entities with significant access

to capital markets.

Some servicers, including specialty servicers, have business models that

result in significant concentrations of MSR on their balance sheets

relative to capitalization and servicing income as their principal source of

Funding liquidity risk is the risk that a firm will not be able to meet its current and future

cash flow and collateral needs, both expected and unexpected, without materially affecting

its daily operations or overall financial condition.

Liquidity Risk and MSR

Volatility

Page 27 GAO-16-278 Nonbank Servicers

revenue.

As a result, while all MSR holders are sensitive to changes in

MSR values, due to a lack of diversification, some nonbanks are

particularly vulnerable to these fluctuations. MSR values are highly

volatile, as they depend on interest rates and loan mortgage defaults.

For example, a large nonbank servicer reported in its third quarter 2015

earnings press release that its servicing revenue had declined by 67

percent, in part driven by a 285 percent decline in the market value of its

MSR assets compared to the previous quarter. These fluctuations can

affect perceptions of the financial condition of institutions and therefore

the willingness of creditors to provide them with the liquidity required for

critical operations. Some nonbanks have more diversified operations to

mitigate the risks associated with MSR volatility, such as those that

originate loans. In addition, our analysis of some nonbank servicers’

financial reports revealed their attempts to hedge risk associated with

MSR, including one servicer that has engaged in transactions designed to

transfer interest rate risk to capital markets.

Another way to mitigate the

risk of significant MSR concentrations is to hold sufficient capital to

absorb potential losses associated with changes in MSR valuations.

Issues at nonbanks related to liquidity challenges and MSR volatility can

have implications for consumers, investors, creditors and others. For

example, weaker liquidity and capital positions at nonbank servicers could

increase the risk of disruption in services to customers. Moreover, when

faced with liquidity constraints, nonbank servicers may face greater

incentives to resolve delinquencies quickly—such as through loan

Ginnie Mae officials and Freddie Mac representatives said that some newer nonbank

servicers issue debt to acquire MSR and then rely on returns from those MSR to repay

their debts.

As interest rates decline, loans are prepaid due to enhanced refinancing opportunities.

As a result, the total value of existing MSR declines because no further servicing fees are

collected on the prepaid loans.

Market risk can be reduced by transferring some of the risk to counterparties who want

exposure to this risk in exchange for a return. In this case the servicer has issued a new

type of MSR-backed bond, therefore transferring risk from the servicer to purchasers of

the bond.

A 2014 report by Kroll Bond Rating Agency found that MSR holdings for three large

nonbanks mortgage servicers ranged from 164 percent to 318 percent of tangible

common equity. As a point of reference, under Basel II rules for banks, MSR is limited to

10 percent of a bank’s common equity Tier 1 capital. MSR assets not deducted from

common equity Tier 1 will be subject to a 250 percent risk-weight in 2018.

Page 28 GAO-16-278 Nonbank Servicers

modification or foreclosure—in order to reduce advance payment

obligations for loans in private-label securities. While these steps reduce

costs and enhance the financial viability of the individual servicer, they

may come at the expense of investors (who may lose revenue through

modifications) and borrowers (who may lose their homes through

foreclosure).

In addition, some nonbank servicers also may attempt to

cut operational costs in response to liquidity issues; FHFA officials said

that these measures could lessen servicers’ efforts to comply with

consumer protection laws and regulations. Finally, Ginnie Mae and the

enterprises could potentially experience losses because of risks

associated with their nonbank servicer counterparties. For example,

FHFA’s Inspector General reported that if one of the enterprises’

servicers does not comply with their respective servicing requirements,

the enterprises can require the servicer to repurchase any improperly

serviced loans.

FHFA’s Inspector General reported that Freddie Mac

and Ginnie Mae suffered losses when Taylor, Bean & Whitaker lacked the

financial capability to do so.

The failure of a large bank or nonbank servicer could affect both

consumers and the servicing industry.

Officials from an organization of

state supervisors, representatives from Freddie Mac, and the monitor of

the national mortgage settlement expressed concern that the failure of a

nonbank servicer could have broad effects in the mortgage servicing

market. They said that a large nonbank servicer’s failure could reduce the

liquidity of MSR and negatively affect market confidence in nonbank

servicers, or potentially cause additional servicer failures if investors were

to divest or lenders were to withdraw funding out of a general concern

about servicers’ financial performance.

Compensation schemes for private-label securities may create incentives for market

participants to act against borrowers’ and investors’ interests, but the extent to which

these incentives affect the nonbank servicers’ behavior is uncertain.

Federal Housing Finance Agency, Office of Inspector General, FHFA’s Oversight of

Risks Associated with the Enterprises Relying on Counterparties to Comply with Selling

and Servicing Guidelines, AUD-2014-018 (Sept. 26, 2014).

Federal Housing Finance Agency, Office of Inspector General, Systemic Implications

Report: TBW-Colonial Investigation Lessons Learned, SIR-2014-0013 (Washington, D.C.:

Aug. 21, 2014).

For the purposes of this report, a servicer is considered to have failed when it files for

bankruptcy protection or is otherwise unable to fulfill its servicing responsibilities.

Several Factors Would

Likely Mitigate Effects of

the Failure of a Single

Large Nonbank Servicer

Page 29 GAO-16-278 Nonbank Servicers

The failure of a large nonbank servicer could also have a material effect

on consumers. For instance, the failure could harm consumers through

servicing interruptions or other issues during the transfer of their MSR to

new servicers. As discussed above, ineffective transfers can have

negative consequences for borrowers.

While the effect of a future failure of any large nonbank servicer is

uncertain, the effect on the servicing industry would likely be mitigated by

several important factors, including the following:

Large nonbank servicers are still relatively small and not

interconnected. Various market participants we interviewed suggested

that the failure of a large nonbank servicer could potentially have a less

significant effect on the mortgage servicing market than the failure of a

large bank servicer because banks have greater shares of the servicing

market. As discussed previously, the largest nonbank servicer had a

market share of about 4.1 percent as of the second quarter of 2015,

compared to about 17.1 percent for the largest bank servicer. Similarly,

although some large nonbank servicers have a high degree of financial

sophistication and relationships with a number of counterparties that

could be exposed to risk, they are generally not as interconnected with

the financial system as large banks. As a result, unless there were

multiple failures of large nonbanks, the effect on broader markets would

likely be limited. However, certain segments of the servicing market

where nonbanks have larger market shares, such as delinquent loans,

could be affected more significantly.

Other small and large servicers are capable of absorbing the

portfolios of any one failed nonbank servicer. As discussed earlier,

our analysis suggests that, when viewed at the national level, the

mortgage servicing industry is relatively unconcentrated, which implies

that no one servicer is particularly large relative to the market. As a result,

surviving servicers are more likely to have the capacity to absorb a failed

servicer’s portfolio—even the largest, all else being equal. The increased

participation of nonbank servicers has increased the number of servicers

capable of and willing to service any one failed servicer’s loans,

potentially enabling an easier and less costly transfer of loans. For

example, our analysis of the enterprises’ servicer capacity data suggests

that their respective nonbank servicers could provide more back-up

servicing capacity than their bank servicers.

Page 30 GAO-16-278 Nonbank Servicers

The enterprises and Ginnie Mae would likely intervene for agency-

backed loans. In the event of a large nonbank servicer’s failure whose

portfolio cannot be easily absorbed by other servicers, officials from the

enterprises and Ginnie Mae told us they would intervene to acquire the

failed servicer’s MSR or coordinate with the servicer through its

bankruptcy process to help ensure that the loans continue to receive

service. Some servicers and market participants we interviewed cited

previous scenarios, including the transfer of the servicing portfolios of

Aurora Bank in 2012; Taylor, Bean, & Whitaker in 2009; Residential

Capital in 2012; and Doral Bank in 2015.

Ginnie Mae and the

enterprises track some servicers’ capacity and have agreements in place

with servicers to service loans under specific circumstances, including

another servicer’s failure. These agreements generally outline terms for

the temporary servicing of loans for a failed servicer while it solidifies a

transfer plan. The effects of a nonbank servicer’s failure on consumers

whose loans are not serviced by Ginnie Mae or enterprise-approved

servicers, such as consumers with loans in private-label securities, are

more uncertain, as discussed later in this report.

In the event of a large nonbank servicer’s failure whose portfolio cannot

be easily absorbed by other servicers, Ginnie Mae and the enterprises

would likely ultimately bear most of the associated costs, although

consumers would also likely see some effects. Regulators and market

participants said that the ease with which servicing could be continued

seamlessly without consumers experiencing harm would depend on the

individual nature of the failure. They added that previous transitions from

failed servicers were sometimes complicated. According to regulators,

A combination of difficulties contributed to Taylor, Bean, & Whitaker’s failure, including

fraud and capacity issues, Ginnie Mae and Freddie Mac had substantial outstanding

repurchase demands pending against Taylor, Bean, & Whitaker, and Freddie Mac

eventually settled with the company in bankruptcy court over its repurchase obligations.

Aurora Loan Services LLC was a subsidiary of Aurora Bank, FSB, which was itself a

subsidiary of Lehman Brothers Holdings, Inc. It continued servicing its MSR through

bankruptcy before its portfolio, which included servicing rights for Fannie Mae MBS, was

transferred to a nonbank servicer that also purchased the company. Issues with Doral

Bank’s safety and soundness and accounting practices contributed to its failure. Doral

Bank’s portfolio of Fannie Mae, Freddie Mac, and Ginnie Mae servicing rights was sold to

a bank servicer that also purchased its banking operations. Residential Capital, a

subsidiary of General Motors Acceptance Corporation, failed in part due to difficulties with

generating revenue while servicing its portfolio of delinquent loans. Its servicing portfolio,

which included servicing for Ginnie Mae, Freddie Mac, and Fannie Mae, was transferred

to two nonbank servicers.

Page 31 GAO-16-278 Nonbank Servicers

despite the intervention of the enterprises and Ginnie Mae in past

nonbank servicer failures, some consumers still experienced harm, such

as service interruptions or worse. Officials from Ginnie Mae, the

enterprises, and regulators agreed that Ginnie Mae or the enterprises

could suffer financial or credit losses in the process of acquiring the

portfolio of a large failed nonbank servicer. Previous servicer failures

have been costly and otherwise challenging for the enterprises and

Ginnie Mae. FHFA’s Inspector General estimates that the Taylor, Bean &

Whitaker failure will ultimately cost Ginnie Mae, Freddie Mac and others

billions of dollars.

Additionally, HUD’s Inspector General determined that

Ginnie Mae struggled to adapt to the operational stress of servicing

additional loans and failed to adequately identify, analyze, and respond to

changes in its control environment during the acquisition of Taylor, Bean

& Whitaker’s portfolio.

Nonbank servicers are subject to federal and state oversight, but

regulators may be hindered by incomplete information on the identity of

these entities and limited supervisory authority. CFPB directly oversees

nonbank servicers’ compliance with federal consumer financial laws, but it

lacks data on the number and identity of all servicers under its purview.

State regulators may also require nonbank entities to be licensed for

various mortgage-related activities and may examine their financial

soundness and compliance with relevant state laws. In addition, FHFA

monitors nonbank servicers’ business activities conducted with the

enterprises. However, unlike bank regulators, which have a similar

responsibility to help ensure the safety and soundness of the entities they

supervise, FHFA does not have the statutory authority to examine third

parties that do business with the enterprises. In addition to federal

regulators, market participants such as Ginnie Mae and the enterprises

monitor nonbank servicer activities to manage their risk exposure to

nonbank mortgage servicers.

Federal Housing Finance Agency, Office of Inspector General, Systemic Implications

Report: TBW-Colonial Investigation Lessons Learned.

Department of Housing and Urban Development, Office of Inspector General,

Government National Mortgage Association, Washington, DC, Fiscal Years 2014 and

2013 Financial Statements Audit, , 2015-FO-0003 (Washington, D.C.: Feb.27, 2015).

Nonbank Mortgage

Servicers Are

Generally Subject to

Federal, State and

Market Oversight, but

Some Limitations

Exist

Page 32 GAO-16-278 Nonbank Servicers

CFPB is responsible for issuing and enforcing regulations related to

federal consumer financial protection laws, examining bank and nonbank

mortgage servicers for compliance with consumer protection

requirements, and tracking consumer complaints about mortgage

servicing. For instance, in February 2013, CFPB issued new regulatory

standards for how mortgage servicers handle borrower accounts and

provide consumers information about their loans.

The rules established

new requirements for servicers, including that servicers keep consumers

informed about the status of their loan through monthly statements and

provide delinquent homeowners timely information about loss mitigation

opportunities.

In 2012, CFPB implemented its nonbank mortgage servicer examination

program to assess servicer compliance with applicable consumer

financial laws. CFPB officials said they use a risk-based approach to

select servicers for examination that includes risk factors such as servicer

size (volume of accounts serviced) and the number and types of

consumer complaints received.

The mortgage servicing section of

CFPB’s most recent Supervision and Examination Manual defines the

types of servicing activities that may be reviewed during an examination,

including servicing transfers, payment processing, and loss mitigation

efforts.

As of August 2015, CFPB’s examinations of nonbank servicers revealed

various possible violations of relevant laws and regulations or operational

deficiencies, and CFPB required corrective actions to address those

deficiencies, as applicable. For example, one examination we reviewed

noted that the servicer did not receive key information and documentation

Mortgage Servicing Rules Under the Real Estate Settlement Procedures Act (Regulation

X), 78 Fed. Reg. 10696 (Feb. 13, 2014); Mortgage Servicing Rules Under the Truth in

Lending Act (Regulation Z), 78 Fed. Reg. 10902 (Feb. 14, 2013).

CFPB’s examinations include follow-up reviews on a servicer’s efforts to address

specific corrective actions from previous examinations.

Consumer Financial Protection Bureau, CFPB Supervision and Examination Manual,

version 2 (October 2012).

Nonbank Servicers Are

Subject to Federal, State

and Market Oversight

CFPB Monitors and Enforces

Nonbank Servicer Compliance

with Consumer Financial Laws

Page 33 GAO-16-278 Nonbank Servicers

during the transfer of MSR from the previous servicer, such as paperwork

for loss mitigation activities already in process for a borrower at the time

of the transfer. CFPB required the servicer to strengthen its transfer

policies and procedures to require all necessary information from the prior

servicer at the loan transfer. In November 2015, CFPB summarized its

aggregate examination findings for both bank and nonbank servicers.

For example, CFPB found that at least one servicer did not send loss

mitigation acknowledgment notices to borrowers who had requested

payment relief on their mortgage payments, as required by Regulation

CFPB examiners also identified a deceptive practice related to how

at least one servicer disclosed the terms of a payment plan that deferred

mortgage payments. According to CFPB, the servicer’s communications

included misleading representations about how deferred payments

worked. CFPB also directed at least one servicer to disclose clearly how

interest accrues while on the plan and its effect on monthly payments

after the deferment period concludes.

State regulators have varied prudential and operational requirements for

nonbank servicers, which largely correlate to each state’s schemes for

licensing servicers and examination of nonbank servicers’ activities.

According to the Conference of State Bank Supervisors (CSBS), 36

states, district, and territories (including the District of Columbia, Guam

and Puerto Rico), license mortgage servicers, as shown in figure 4. Of

these 36, 17 states and districts require companies to hold a license

specific to mortgage servicing.

Officials from one state we spoke with

that requires specific mortgage servicing licenses said their state has its

own financial requirements for nonbank servicers, including minimum

standards for net worth and liquidity. To monitor the safety and

soundness of nonbank servicers, this state also examines nonbank

Consumer Financial Protection Bureau, Supervisory Highlights, Issue 9, Fall

2015(Washington, D.C.: Nov. 3, 2015). This CFPB publication provides the public and the

financial industry with a summary of any unfair practices, violations, and deception. CFPB

does not differentiate in its highlights whether findings were based on examinations of

bank or nonbank servicers.

Under regulations governing loss mitigation activities, servicers must notify the borrower

in writing within 5 days after receiving the borrower’s loss mitigation application that the

servicer acknowledges receipt of the application and that the servicer has determined that

the loss mitigation application is either complete or incomplete. 12 C.F.R. §

1024.41(b)(2)(i)(B).

According to CSBS, 840 nonbank companies were licensed as of August 2015.

Some State Regulators

Monitor Nonbank Servicers

through their Licensing and

Examination Programs

Page 34 GAO-16-278 Nonbank Servicers

servicers every 1 to 3 years, depending on the servicer’s size and

compliance history. These examinations include a review of the nonbank

servicer’s organization structure, internal controls, financial condition, and

ability to withstand economic downturns.

Figure 4: Map of State, District and United States Territory Mortgage Servicing Licensing Requirements as of June 2015

The 19 other states and territories that license servicers require them to

apply for general licensing authority, which may include a number of

activities in addition to servicing, such as lending, handling escrow

payments, or debt negotiation (see previous fig. 4). According to officials

from one state with such requirements, their state requires nonbank

mortgage servicers to be approved as a servicer with at least one federal

housing agency, such as Ginnie Mae or the Federal Housing

Page 35 GAO-16-278 Nonbank Servicers

Administration. Officials from this state also said that servicers licensed in

their state must maintain a minimum net worth and a surety bond and

submit annual audited financial statements.

The 17 states that do not license nonbank servicers provide varied levels

of oversight of nonbank servicers. For instance, we interviewed officials

from one state that examines mortgage brokers and lenders at least once

every 3 years. Officials from this state said that if their office receives

complaints about licensees related to escrow payments and loan

modifications, they work to find resolution for the consumer or take

regulatory action as appropriate and permitted. Complaints filed against

entities they do not oversee are forwarded to the appropriate federal

regulator, such as CFPB. An official from another state said that their

state office does not have legislative authority to license nonbank

servicers and, therefore, has no oversight over them because they can

examine only licensees. Additionally, the official said that their office

forwards any complaints about mortgage servicing to its state attorney

general.

Although state regulators, CFPB, Ginnie Mae, and the enterprises have

all established a variety of standards that apply to nonbank servicers,

CSBS and American Association of Residential Mortgage Regulators

noted that nonbank servicers are not subject to consistently

comprehensive safety and soundness standards. In response to the

growth of nonbank mortgage servicers, CSBS and the American

Association of Residential Mortgage Regulators issued proposed

prudential standards for nonbank servicers in March 2015 for comment.

The proposed standards include a set of baseline prudential standards

applicable to all nonbank mortgage servicers in eight areas: capital,

liquidity, risk management, data standards, data protection (including

cybersecurity), corporate governance (including auditing requirements),

servicing transfer requirements, and change of control requirements.

Under the proposed standards, more complex nonbank servicers would

also have additional requirements for capital, liquidity, stress testing, and

living will and resolution plans, which would illustrate a possible plan to

American Association of Residential Mortgage Regulators and the Conference of State

Bank Supervisors, Proposed Regulatory Prudential Standards for Non-Bank Mortgage

Servicers, Executive Summary (Mar. 25, 2015).

Page 36 GAO-16-278 Nonbank Servicers

recover in the event a servicer experiences hardship.

In its press

release, CSBS stated that state regulators have primary credentialing and

licensing authority over these nonbank servicers. They added that state

prudential regulation of these servicers would, among other goals, help

provide better protection for borrowers, investors, and other stakeholders.

CSBS received 26 comment letters on the proposed prudential standards,

and all but 1, which fully supported the proposal, raised concerns about

the effect of the standards, especially on smaller servicers.

For

example, 7 letters representing the interests of smaller servicers said that

the proposed minimum net worth requirement of $2.5 million, which is

similar to the enterprises’ capital requirements discussed later, may not

be attainable for some small servicers. Four letters suggested that, similar

to CFPB’s small servicer exemption, nonbank servicers that service

smaller portfolios (5,000 or fewer loans) or smaller-value portfolios

(totaling less than $750 million in unpaid principal balance) should be

exempt from the proposed standards.

In addition, some commenters on the proposed prudential standards, as

well as some nonbank servicers we interviewed, raised concerns that

variations between federal and state regulations can result in regulatory

burden and increase compliance costs that may ultimately be passed on

to consumers. While understanding the importance of consumer

protection regulations, they said that bank and nonbank servicers must

comply with both federal and state laws. As an example, one servicer

explained that it operates in one state where it must follow rules for

contacting customers that are more specific than the federal

requirements. Other servicers mentioned that complying with the varied

The additional standards would apply to firms according to factors such as the number

or dollar amount of loans serviced, the composition of the servicing portfolio, and the

entity’s primary business (such as sub-servicing).

CSBS received 26 comments letters on the proposed prudential standards from the

following organizations: American Bankers Association, Associated Mortgage Investors,

Bennett Interests, California Mortgage Association, Community Mortgage Lenders of

America, Creative Homebuyers Inc., Habitat for Humanity, Illinois Manufactured Housing

Association, Manufactured Housing Institute, Manufactured Housing Institute

Supplemental, Mortgage Bankers Association, National Reverse Mortgage Lenders

Association, Ohio Manufactured Homes Association, Plaza Home Mortgage, Pueblo de

Palmas Inc., Rishel Consulting, Shellpoint Partners, SRC Management, state associations

joint comments, Texas Funding Corporation , Texas Land and Mortgage, Texas Mortgage

Bankers Association, Triad Financial Services, Veterans United Home Loan, Williams

Mullen, and Wisconsin Housing Alliance.

Page 37 GAO-16-278 Nonbank Servicers

foreclosure and mitigation requirements among states can be

cumbersome and time consuming, especially in states that require judicial

review for all foreclosures.

CSBS officials said they do not have a

specific time frame for releasing the final prudential standards. They said

they are reviewing the comments received and discussing how to

appropriately scale the standards so as not to disadvantage smaller

servicers while holding larger, more complex operations to sufficient

standards. Moreover, each state can choose whether and how to adopt

the standards, which could introduce additional variation among states.

State regulators may also coordinate nonbank servicer oversight via other

state regulator associations and agreements. For example, CSBS

convenes a Multi-State Mortgage Committee to coordinate examination of

servicers that operate in 10 or more states.

The committee’s 2014

report noted that committee-led examinations of nonbank servicers

revealed the need for improvement in management information systems

for accurate and efficient servicing of mortgage loans.

In 2014, the

committee also led the approval of a nationwide protocol for mortgage

supervision, which set forth goals for state coordination of nonbank

servicer oversight.

As another example, CSBS and other state regulator

authorities signed a memorandum of understanding that included planned

steps to facilitate information sharing about examination of nonbank

entities, including nonbank servicers, such as developing a list of

nonbank entities subject to examination; developing protocols for

scheduling, sharing and updating examination schedules; and

In judicial foreclosure states, lenders must provide evidence of delinquency to a court in

order to move a borrower into foreclosure, which could result in longer foreclosure

timelines. In nonjudicial foreclosure states, lenders can issue notices of default directly to

the borrower without court action.

The Multi-State Mortgage Committee includes 10 appointed members from various

states that serve 2-year terms; members were last appointed in 2014. The current

committee includes members from Arkansas, California, Florida, Illinois, Maryland,

Massachusetts, New Hampshire, New York, Oregon, and Washington.

American Association of Residential Mortgage Regulators and the Conference of State

Bank Supervisors, Multi-State Mortgage Committee, Report to State Regulators (2014).

The protocol outlined six goals: (1) protect consumers; (2) ensure the safety and

soundness of multistate mortgage entities; (3) identify and prevent mortgage fraud; (4)

supervise and examine in a seamless, flexible, and risk‐focused manner; (5) minimize

regulatory burden and expense; and (6) foster consistency, coordination, and

communication among state regulators. As of June 2014, all states except Colorado had

adopted the agreement.

Page 38 GAO-16-278 Nonbank Servicers

designating a single point of contact for each nonbank entity scheduled

for examination.

FHFA provides indirect oversight of nonbank servicers through its

supervision of the enterprises, including monitoring the enterprises’ risk

management processes and MSR transfer activities. Among other things,

FHFA officials can participate in enterprise governance meetings to

understand the enterprises’ counterparty monitoring plans or meet directly

with some servicers, as needed or requested. For example, as part of

their efforts to monitor servicers’ operational difficulties, FHFA officials

said they worked with the servicers to develop and implement an action

plan to help reduce the enterprises’ risk to potential losses by that

servicer.

As part of its oversight role, FHFA also reviews and approves MSR

transfers over a specific threshold and has issued internal guidance to the

enterprises on the execution of MSR transfers. The enterprises submit

monthly reports to FHFA regarding all of their MSR transfers, including

information on approval and transfer status, transferees, reason for the

transfer, and the volume and value of the transfer.

FHFA monitors

trends in the enterprises’ segment of the mortgage servicing market,

including trends in mortgage servicer agreements and counterparty risks

posed to the enterprises. FHFA officials also monitor the types and

numbers of loans being transferred from one servicer to another, which

can indicate potential financial or operational problems with servicers.

In January 2015, in response to changes taking place in the servicing

industry and to better ensure the safe and sound operation of the

enterprises and provide greater transparency, clarity, and consistency to

industry participants and other stakeholders, FHFA directed the

enterprises to issue updated minimum financial eligibility requirements for

all of their servicers, including net worth, capital ratio, and liquidity criteria.

In May 2015, the enterprises issued the new standards, which apply to all

In 2013, CSBS, the American Association of Residential Mortgage Regulators, the

Money Transmitter Regulators Association, the National Association of Consumer Credit

Administrators, the North American Collection Agency Regulatory Association, and the

National Association of State Credit Union Supervisors signed the Nationwide Cooperative

Agreement for State Governance of NonDepository Supervision.

Value is based on unpaid principal balance of the loans in the transfer.

FHFA Recently Increased Its

Indirect Oversight of Servicers

Used by the Enterprises

Page 39 GAO-16-278 Nonbank Servicers

servicers.

According to FHFA, these requirements align the minimum

financial requirements that servicers must meet in order to do business

with Fannie Mae and Freddie Mac. FHFA officials said the new

requirements became effective December 31, 2015.

Market participants—including the enterprises, Ginnie Mae, and federal

agencies that insure or own loans—also monitor the activities of a

significant proportion of the mortgage market. As of the second quarter

2015, approximately 90 percent of all outstanding home mortgages either

(1) were owned by a bank, federal agency or government sponsored

enterprise (including Fannie Mae and Freddie Mac) or (2) were in MBS

guaranteed by Ginnie Mae or issued by a government sponsored

enterprise, as shown in figure 5.

Servicers of these loans must meet—or

must ensure that entities servicing their loans meet—certain operational

and financial requirements. For example, Freddie Mac’s and Fannie

Mae’s servicing guides each identify minimum requirements for adequate

staff and facilities for servicing, net worth, and liquidity, as well as internal

audit and management control processes to evaluate servicing.

The

remaining 10 percent of home mortgages are owned by various entities,

including state and local governments, pension funds, and life insurance

companies, or they are held in private-label securities. Some nonbank

servicers that operate exclusively in this segment of the market are

subject to less regulatory oversight. However, given data limitations, we

did not determine the number or identities of nonbank servicers that do

not service loans for federal agencies or federally regulated entities,

including banks and the enterprises. We discuss limitations in the data

available on nonbank servicers and the potential effect these limitations

may have for regulatory oversight later in this report.

Federal Housing Finance Agency, Fannie Mae and Freddie Mac Issue New Eligibility

Requirements for Seller/Servicers, News Release (May 20, 2015).

For the purposes of this analysis, banks also include credit unions. Additionally, this

analysis includes a small number of mortgages owned by Ginnie Mae. In addition to

Fannie Mae and Freddie Mac, the Federal Home Loan Banks and the Farm Credit System

are government sponsored enterprises that also own home mortgages.

Fannie Mae’s servicing guide can be found at

https://www.fanniemae.com/content/guide/servicing/index.html. Freddie Mac’s servicing

guide can be found at http://www.freddiemac.com/singlefamily/guide/.

Market Participants Monitor

Nonbank Servicers

Page 40 GAO-16-278 Nonbank Servicers

Figure 5: Percentage of Home Mortgages Owned or Guaranteed by Entity, as of

2015Q2

Home mortgages owned by others are home mortgage loans owned by households and nonprofits;

nonfinancial businesses; state and local governments, including state and local government

employee retirement funds; life insurance companies; private pension funds; issuers of asset backed

securities (such as private-label securities); finance companies; and real estate investment trusts.

Bank portfolios are loans owned by federal- and state-chartered depository institutions, credit unions,

foreign banking offices in the U.S., and banks in U.S. affiliated areas.

Other federal agencies and government sponsored enterprises that own home mortgage loans are

the Federal Housing Administration, the Department of Veterans Affairs, the Federal Deposit

Insurance Corporation, the Department of Agriculture, the Farm Credit System, and the Federal

Home Loan Banks.

The enterprises and Ginnie Mae review servicer activities to help ensure

compliance with their requirements. For example, the enterprises review

servicers’ financial condition as well as their policies and procedures for

loss mitigation, payment processing, and document management.

Enterprise reviews of nonbank servicers that we examined noted

operational areas that needed improvement and steps these servicers

had taken to address identified weaknesses. The enterprises also have

ratings programs to further monitor their servicers’ performance. Similarly,

Ginnie Mae maintains a watch list to internally identify issuers of MBS and

servicers of mortgages that may be subject to additional risk monitoring

based on their financial or operational status.

Page 41 GAO-16-278 Nonbank Servicers

FHFA and Ginnie Mae officials, as well as enterprise representatives, told

us that historically, bank servicers, which are subject to continuous

prudential oversight by bank regulators, dominated the market. This

limited the need for Ginnie Mae or the enterprises to provide additional

monitoring beyond their existing processes. However, while banks

continue to dominate the market, Ginnie Mae officials and enterprise

representatives said that they have increased their monitoring of and

requirements for nonbank servicers for a number of reasons. Some of the

reasons cited were (1) the increased number of nonbank servicers, (2)

the relative complexity of some nonbank servicers’ servicing

arrangements, and (3) counterparty risk posed to the enterprise.

Additionally, Ginnie Mae officials expressed concern about their ability to

fulfill some of these increased monitoring responsibilities given resource

constraints.

Federal agencies that insure loans, including the Federal Housing

Administration and the Rural Housing Service, or guarantee loans, such

as the Department of Veterans Affairs, also monitor the activity of their

approved nonbank servicers that service loans in their respective

programs. These agencies have guidelines to which their approved

servicers must adhere, including some requirements that servicers

demonstrate financial stability. For example, the Federal Housing

Administration requires servicers to maintain minimum net worth and

capital thresholds. Additionally, the agency conducts an annual servicer

recertification and requires that its servicers guard against servicing

errors. The Rural Housing Service tests all of its servicers operations at

least once every 2 years, and reviews various loan servicing components,

such as application of payments and collection of delinquent accounts.

Similarly, the Department of Veterans Affairs reviews all loans referred for

foreclosure to ensure that the servicer assessed all possible loss

mitigation options.

Other market participants that own mortgage loans, MBS, or MSR, such

as investors in real estate investment trusts or private label securities,

may contract with servicers to service their loans and establish

operational and other requirements for their sub-servicers. For example,

one investor we talked to said his company uses multiple servicers,

including nonbank servicers, to take advantage of some nonbank

servicers’ operational capabilities, such as servicing delinquent accounts,

accessing excess servicing capacity, and contingency planning should a

servicer fail to perform. Officials from the real estate investment trust we

interviewed told us that because they are the servicer of record and

ultimately accountable for enterprise and agency servicer requirements,

Page 42 GAO-16-278 Nonbank Servicers

they review accounts being serviced by their contracted sub-servicers

and meet frequently with their nonbank sub-servicers to ensure

compliance. Further, they may also set additional incentives for servicer

performance, such as rewards for increased numbers of loss mitigation

and workout plans with borrowers. Similarly, private-label MBS are

governed by servicing agreements specifying investors’ expectations for

servicers. However, while trustees of private-label securities offer some

oversight, a 2011 Georgetown Public Law research paper noted that

investors in these securities may not take actions to address servicer

problems.

Lastly, representatives from private mortgage insurers told us

that bank and nonbank servicers must follow requirements for loss

mitigation steps, among other things, outlined in their insurance policies,

which compensate lenders or investors for losses due to the default of a

mortgage loan.

Rating agencies also assess the financial profile and capital adequacy of

servicers. According to representatives from one rating agency with

whom we spoke, they evaluate servicer operations as part of rating MBS.

The activities reviewed include a servicer’s risk control policy, growth rate,

and funding sources. Further, when rating agencies evaluate the capital

adequacy of servicers, MSR are excluded from the capital calculation

because of the variability in MSR valuations. Although they do not directly

examine servicers, rating agency representatives said they also meet

onsite with servicers, review file samples, and listen to customer calls to

assess servicer performance.

Levitin, Adam and Twomey, Tara, Mortgage Servicing, 28 Yale K. on Reg. 1-90 (2011).

Private mortgage insurance protects a lender against loss if the borrower defaults on his

or her mortgage loan. Private mortgage insurance premiums may be paid by the borrower,

the lender, or an investor.

Federal Agencies Lack

Data and Authority to

Oversee Third Party

Servicers, including

Nonbank Servicers

Page 43 GAO-16-278 Nonbank Servicers

CFPB lacks a mechanism to collect comprehensive data on the identity of

all nonbank servicers. No comprehensive list of nonbank servicers exists,

in part because prior to the creation of CFPB in 2010, no federal regulator

had responsibility for nonbank entities. According to CFPB officials, the

agency lacks comprehensive data due to external data constraints, and

collecting this information is challenging. Unlike the case of depository

institutions where definitive lists exist, there is no single source of data

that identifies all nonbank servicers. Although CFPB has been able to

compile information on a number of nonbank servicers, the list of

servicers identified is not complete and the various sources CFPB used

have limitations. For example, CFPB obtains some data from CSBS

through an agreement to share nonbank servicer data. But, these data

are limited because state-specific servicing information is only required of

companies that are Fannie Mae, Freddie Mac, or Ginnie Mae servicers.

As a result, the number and identity of nonbank servicers that do not

service for the enterprises or Ginnie Mae are unknown. In 2012, CFPB

officials estimated that out of a total of 12,711 mortgage servicers, there

were approximately 1,300 nonbank servicers for residential mortgage

loans. CFPB officials stated that they relied on the best available data,

including data they collect from self-reported servicers as well as

information from CSBS and other industry data sources to develop this

estimate. Although CFPB has a limited record of the servicers that have

self-reported to be exempt from some of CFPB’s servicing requirements

via the small servicer exemption, CFPB does not require small servicers

to affirmatively report their status.

Therefore, for servicers it has not

already identified, CFPB may not be able to oversee compliance with

laws and regulations consistently. For example, representatives from one

consumer group we spoke with expressed concern that some small

servicers escaped attention from regulators and more frequently violated

consumer financial laws. CFPB, given its mandate to enforce consumer

financial laws, is uniquely positioned to navigate the data challenges

associated with compiling this information and putting in place a

mechanism to do so.

Servicers that qualify as small servicers are exempt from certain parts of the mortgage

servicing rules. A small servicer is a servicer that (1) services 5,000 or fewer mortgage

loans for which the servicer (or an affiliate) is the creditor or assignee; (2) is a Housing

Finance Agency (as defined in 24 C.F.R. § 266.5); or (3) is a nonprofit entity that services

5,000 or fewer mortgage loans for all of which the servicer or an associated nonprofit

entity is the creditor. 12 C.F.R. § 1026.41(e)(4)(ii). A servicer that services any mortgage

loan not originated or owned by the servicer or its affiliate does not qualify as a small

servicer, even if it services 5,000 or fewer loans overall.

Data Limitations Challenge

CFPB

’s Oversight of Nonbank

Servicers

Page 44 GAO-16-278 Nonbank Servicers

As stated in its 2015 rule making agenda, CFPB is considering whether

rules to require registration of certain nondepository lenders would

facilitate supervision.

However, CFPB officials told us that CFPB is still

deciding whether to issue such a rule or what its scope would be,

including which type of nonbank entities would be included. CFPB has not

given a time frame for when a decision will be made. CFPB officials also

told us that effective January 1, 2018, Regulation C will require Home

Mortgage Disclosure Act (HMDA) reporters, including nonbank servicers

that also originate loans, to report a legal entity identifier (LEI) with their

data submission on mortgage disclosure data.

An LEI is a global code

that uniquely identifies an entity to facilitate consistent identification of

parties to financial transactions. However, if a servicer does not also

originate loans, it may not be required to report HMDA data and therefore

not required to obtain an LEI.

In its 2015 annual report, the Financial

Stability Oversight Council (FSOC) noted that LEIs can be used to track

the number of and other data on mortgage servicers, including nonbank

servicers.

In that same report, FSOC recommended that agencies

evaluate the use of LEI and promote, where appropriate, its use in

reporting requirements and rule makings.

In our January 2009 report on reforming the financial regulatory structure,

we established a framework for modernizing the financial regulatory

Semiannual Regulatory Agenda, 80 Fed. Reg. 78056, 78057 (Dec. 15, 2015).

See Home Mortgage Disclosure (Regulation C), 80 Fed. Reg. 66128, 66178 (Oct. 28,

2015). Regulation C defines the coverage criteria for depository and nondepository

financial institutions to determine whether or not such institutions are required to report

HMDA data. 12 C.F.R. § 1003.2-3. If a financial institution meets the coverage criteria

pursuant to Regulation C, it will be effectively required to obtain an LEI (if it does not

already have one) and must provide it with each data submission beginning with its 2018

data to be filed by March 1, 2019.

HMDA requires certain depository institutions and for-profit nondepository institutions to

collect, report, and disclose data about originations and purchases of mortgage loans, as

well as mortgage loan applications that do not result in originations (for example,

applications that are denied or withdrawn). 80 Fed. Reg. at 66129. Under the revised

Regulation C, effective January 1, 2018, HMDA reporting obligations will apply to

nondepository institutions that originate at least 25 closed-end mortgage loans or at least

100 open-end lines of credit in each of the two preceding calendar years and that have a

branch or home office in a Metropolitan Statistical Area on the preceding December 31. 80

Fed. Reg. at 66128. Nonbank servicers that do not meet those criteria will not be subject

to HMDA-reporting or related LEI requirements.

Financial Stability Oversight Council (FSOC), Annual Report (2015).

Page 45 GAO-16-278 Nonbank Servicers

system.

As part of this framework, we found that regulators should be

able to, among other things, identify institutions and products that pose

risks to the system and that similar institutions and products should be

subject to consistent oversight. Other federal regulators require

registration of entities under their supervision. For example, self-

regulatory organizations, broker-dealers, certain transfer agents, clearing

agencies, investment companies, and investment advisers are required to

regulators are able to identify entities under their supervision through the

bank chartering process, which includes information about third parties,

such as nonbank servicers, which may be functioning as service

providers for the bank. According to CFPB officials, CFPB’s risk-based

prioritization framework allows the agency to identify risks facing the

nonbank mortgage servicing market. However, without being able to

account for the nonbank servicers operating in the market through

mechanisms such as registration or expanded use of LEIs, CFPB may

face challenges as it seeks to fulfill its mission to enforce consumer

protection laws and to study consumers, financial services providers, and

consumer financial markets.

Although FHFA’s primary mission is to monitor the safety and soundness

of the enterprises, FHFA does not have statutory authority to conduct

examinations of third parties, including bank and nonbank servicers that

the enterprises use. The enterprises rely on third parties—their approved

servicers—to service the mortgage loans in their portfolios. According to

FHFA’s 2014 report to Congress, the agency’s on-site targeted

examinations and risk assessments of the enterprises are designed to

identify existing and potential risks that could harm the enterprises and to

determine the enterprises’ compliance with applicable laws and

regulations. FHFA officials said that they review the enterprises’ risk

management framework to determine whether the enterprises can

effectively manage the financial, operational, and legal risks from their

third parties, such as servicers. Additionally, FHFA has issued guidance

and criteria to the enterprises for risk management of third parties,

including advisory bulletins on the oversight of servicer relationships,

Semiannual Regulatory Agenda, 80 Fed. Reg. 78056, 78057 (Dec. 15, 2015).

FHFA Has Limited Authority to

Examine Third Parties Used by

the Enterprises

Page 46 GAO-16-278 Nonbank Servicers

mortgage servicing transfers and contingency planning for high risk and

high volume counterparties.

FHFA officials told us that the enterprises have contractual agreements

that include provisions and other arrangements with some large servicers

that include provisions that would enable FHFA to examine servicer

activities. However, officials said FHFA has not directed the enterprises to

include such provisions consistently because amending existing contracts

to include these provisions could potentially be cumbersome and because

the contracts could still be challenged by servicers. Officials also said that

some smaller servicers may not have contracts with the enterprises but

rather are simply approved as servicers and required to follow existing

servicing guidelines and policies. Further, officials said that, in some

instances, nonbank servicers have agreed to meet with and provide

access to FHFA without contractual provisions requiring them to do so.

However, officials said that, although it has not happened, if a servicer

were to contest FHFA’s legal authority to examine a servicer directly as

part of its assessment of an enterprise’s risk management practices, the

result could be delays in access and inefficient use of resources.

FHFA’s lack of statutory authority to examine third parties that provide

services to the enterprises, such as nonbank servicers, is inconsistent

with the statutory authority granted to banking regulators by the Bank

Service Company Act.

Bank regulators, which have similar

responsibilities to ensure the safety and soundness of the entities they

supervise, have statutory authority to examine third parties that provide

services to their supervised banks, including nonbank servicers. For

example, the Office of the Comptroller of the Currency (OCC) can review

nonbank servicers that service loans for banks under its oversight

authority. OCC officials said that they view this authority as important

Federal Housing Finance Agency, Oversight of Single Family Seller/Servicer

Relationships, Advisory Bulletin 2014-07 (Dec. 1, 2014); Mortgage Servicing Transfers,

Advisory Bulletin 2014-06 (June 11, 2014); and Contingency Planning for High-Risk or

High-Volume Counterparties, Advisory Bulletin 2013-01 (Apr. 1, 2013).

Under the Bank Service Company Act, whenever a depository institution that is regularly

examined by a federal banking regulator, or any subsidiary or affiliate of such a depository

institution that is subject to examination by that agency, contracts with a third party to

perform banking services, the third party’s performance is subject to regulation and

examination by the depository institution’s regulatory agency to the same extent as if such

services were being performed by the depository institution itself on its own premises. 12

U.S.C. § 1867(c).

Page 47 GAO-16-278 Nonbank Servicers

because, when serious issues arise with third parties, the agency has the

ability to identify and address third-party deficiencies that could affect the

regulated entity. In its current role as conservator of the enterprises,

FHFA has very broad authority over the enterprises’ operations. Under

the conservatorship, FHFA is responsible for the overall management of

the enterprises. While FHFA has delegated many operational and other

duties to the enterprises’ management and boards, the enterprises must

consult with, and obtain approval from FHFA on critical matters. However,

in its regulator capacity, FHFA officials said that, unlike bank regulators,

FHFA’s authority to examine third parties’ operations directly in order to

determine the enterprises’ risk management effectiveness is not based on

statutory authority and is therefore open to challenges from third parties.

Further, they said that direct access to review the servicers’ operations

when necessary could be a useful supervisory tool. This tool could

become more essential should the enterprises be brought out of

conservatorship and FHFA resume its regulator role.

We have previously reported that a regulatory system should ensure that

similar risks and services are subject to consistent regulation and that a

regulator should have sufficient authority to carry out its mission.

Servicers of enterprise MBS and mortgages held in the enterprises’

portfolios have a relationship to the enterprises that is similar to that

between banks and their third-party servicers. In both cases, servicers

may pose risks, such as the consumer effects associated with managing

MSR transfers, as previously discussed. Because FHFA is responsible for

examining how effectively the enterprises mitigate the risks posed by their

servicers, FHFA may need to examine the third parties’ activities. In its

2015 annual report, FSOC similarly noted that approaches and authorities

to supervise third-party service providers vary across financial regulators,

and it supported efforts to synchronize these authorities.

In that same

report, FSOC supported the passage of new legislation to enhance the

security of third-party service providers and the services they provide.

Specifically, FSOC supported granting examination and enforcement

powers to FHFA to oversee third-party service providers engaged with the

GAO-09-216.

Financial Stability Oversight Council (FSOC), Annual Report (2015).

Page 48 GAO-16-278 Nonbank Servicers

enterprises.

Although FSOC’s focus was on providers of information

technology, this concept applies to all third-party service providers.

Without adequate authority to directly monitor third parties, such as

nonbank servicers, FHFA may be limited in its ability to supervise and

monitor the enterprises’ risk management. Furthermore, while FHFA

could gain access to review the servicers’ operations on an ad hoc basis

through the enterprises’ contractual agreements with some servicers,

statutory authority provides certainty and clarity for FHFA’s examination

powers.

The increased presence of nonbank servicers in the mortgage market

since the 2007-2009 financial crisis has created or magnified both

benefits and challenges for consumers and the mortgage market. This

growth has also generated increased scrutiny of nonbank servicers by

federal and state bank regulators, as well as by market participants, and

opportunities exist to enhance the supervision and monitoring of nonbank

servicers.

• First, although CFPB is responsible for helping to ensure that

nonbank servicers comply with federal laws governing mortgage

lending and consumer protection, CFPB does not have a mechanism

to develop a comprehensive list of nonbank servicers and therefore

does not have a full record of entities under its purview. CFPB uses a

risk-based framework and other mechanisms to identify risks in the

nonbank mortgage servicing market. However, more comprehensive

information on the identity and number of nonbank mortgage servicers

to supplement the information CFPB already has could help CFPB to

more fully understand or respond to consumer risks associated with

nonbank servicers or to enforce compliance with consumer protection

laws.

• Second, FHFA lacks the statutory authority to examine third parties,

such as nonbank servicers, used by Fannie Mae and Freddie Mac. In

contrast, bank regulators have such examination authority. As we

have previously concluded, a regulatory system should ensure that

similar risks and services are subject to consistent regulation and that

In its 2015 annual report, FSOC also supported granting examination and enforcement

powers to the National Credit Union Administration to oversee third-party service providers

engaged with credit unions.

Conclusions

Page 49 GAO-16-278 Nonbank Servicers

a regulator should have sufficient authority to carry out its mission.

Without statutory authority, FHFA lacks a supervisory tool to

effectively monitor third-parties’ operations and the enterprises’

actions to manage any associated risks.

To ensure that FHFA has adequate authority to ensure the safety and

soundness of the enterprises and to clarify its supervisory role, Congress

should consider granting FHFA explicit authority to examine third parties

that do business with and play a critical role in the operations of the

enterprises.

To improve its ability to monitor the consumer effect of nonbank servicers,

the Director of the Consumer Financial Protection Bureau should take

action to collect more comprehensive data on the identity and number of

nonbank mortgage servicers in the market—for example, by requiring the

registration of all nonbank entities or the use of legal entity identifiers.

We provided a draft of this report to the American Association of

Residential Mortgage Regulators; CFPB; CSBS; FHFA, including Fannie

Mae and Freddie Mac; the Department of Agriculture, including the Rural

Housing Service; the Department of Veterans Affairs; the Department of

the Treasury; HUD, including the Federal Housing Administration and

Ginnie Mae; and OCC for review and comment. CFPB, CSBS, FHFA,

and Ginnie Mae provided written comments that we have reprinted in

appendix IV, V, VI, and VII, respectively. The American Association of

Residential Mortgage Regulators, CFPB, CSBS, the Department of

Veterans Affairs, FHFA, Freddie Mac, HUD, and OCC also provided

technical comments that we have incorporated, as appropriate. The

Department of Agriculture, the Department of the Treasury, and Fannie

Mae did not provide any comments.

In its written comments, CFPB agreed that collecting more

comprehensive data on the identity and number of nonbank mortgage

servicers in the market could prove useful in supplementing the amount of

information already available from other sources but that lack of

comprehensive data does not materially affect its work. CFPB

acknowledged that due to constraints on available data, the Bureau did

not have a complete list of the identity of all nonbank mortgage servicers

and that better data in the mortgage servicing market could be useful in

supplementing the information already available. However, CFPB stated

that its use of a risk-based prioritization framework in its oversight of

Matter for

Congressional

Consideration

Recommendation for

Executive Action

Agency Comments

and Our Evaluation

Page 50 GAO-16-278 Nonbank Servicers

mortgage servicing, which we mentioned in the report, minimized the

impact of a lack of a comprehensive list for two reasons. First, CFPB

used state regulators’ information on servicers to inform its work and

collaborated with state supervisors through CSBS to gain an

understanding of the mortgage servicing market. Second, CFPB used

consumer complaints obtained through its consumer response system to

supplement information from other sources to help prioritize its

supervisory work in mortgage servicing. CFPB concluded that information

on remaining small mortgage servicers not captured by its consumer

response system was unlikely to change the risk assessment they

conduct. While these current efforts and data sources may provide CFPB

with sufficient information for a reasonable understanding of the mortgage

servicing market, additional steps to collect comprehensive information on

the identity of all mortgage servicers would better ensure effective

oversight and consistent consumer protections. In addition, as we noted

in the report, mortgage servicing is arranged by the owner of the

mortgage, which means the borrower does not select the servicer of his

loan. As a result, we maintain that it is important for CFPB to take steps—

for instance, through agency actions currently under consideration to

identify other nonbank entities—to collect more comprehensive data to

further ensure that all nonbank servicers comply with federal laws

governing mortgage lending and consumer protection.

In its written comments, CSBS stated that the draft provided compelling

arguments for a coordinated state and federal supervision of nonbank

mortgage servicers and that including such a recommendation in the

report would be very effective. As we stated in the report, a number of

regulators, both federal and state, directly and indirectly oversee various

aspects of nonbank servicers’ operations. We also reported that among

other state coordination efforts, a nationwide protocol for mortgage

supervision has recently been approved that set forth goals for state

coordination of nonbank servicer oversight and that CSBS provides CFPB

access to its database on servicers. While we acknowledge the

importance of collaboration, we did not evaluate the level and

effectiveness of coordination among the state and local supervisors. We

will explore whether such an evaluation would be appropriate for future

work. CSBS also stated that the state regulators were one of the primary

drivers in the National Mortgage Settlement referenced in the draft. Based

on this comment and other sources, we have added their role to footnote

33. Finally, CSBS stated that even though our statement that “CFPB

does not have a mechanism to develop a comprehensive list of nonbank

servicers…” is accurate, it did not present an accurate picture because

CFPB has access to CSBS’s NMLS, which contains information on the

Page 51 GAO-16-278 Nonbank Servicers

vast majority of nonbank servicers. We acknowledged in the report that

CFPB used data from CSBS and other sources for information on

nonbank mortgage servicers. However, we also noted that this data might

not capture all nonbank servicers and CFPB officials stated that collecting

comprehensive data would be challenging due to external constraints.

In its written comments, FHFA concurred with our general conclusion

regarding consistent supervision. More specifically, FHFA generally

agreed that there should be parity among financial institution regulators in

oversight authority with respect to business counterparties of the entities

they regulate.

In its written comments, Ginnie Mae generally agreed with our analysis on

the trend of nonbank servicers’ growth. They commented that while they

took no position on the matter for congressional consideration, they

believed there was a need to develop prudential oversight frameworks

that reflected the unique need of Ginnie Mae and the evolution of the

industry and that they were eager to collaborate with other agencies to

find solutions. More specifically, Ginnie Mae stated that greater reliance

on nonbanks servicers had required Ginnie Mae and other governmental

entities to adapt their policies, practices, and capabilities to this changed

environment. As such, the agency would continue its efforts to obtain

funding to further develop capabilities that were noted in our draft report.

On separate dates in February 2016, the American Association of

Residential Mortgage Regulators provided via email technical comments

related to the draft report’s analysis of the oversight of nonbank mortgage

servicers and HUD provided technical comments related to the analysis

on the recent trend of mortgage servicing. We summarize their most

significant comments and our responses below.

• The American Association of Residential Mortgage Regulators

commented on the significance of state regulators’ role in

mortgage regulation, particularly the ability to provide targeted

oversight with respect to safety and soundness and state specific

consumer protection laws via state licensing authority. The

association further stated that state regulatory licensing and

examination authority should not be seen as duplicative, but

rather, it works in tandem with federal examination and

enforcement authority to provide comprehensive regulation and

oversight of the nonbank mortgage service industry. In our report,

we provided examples of state regulators coordinating among

themselves and with a federal agency to provide oversight of

nonbank servicers. We also reported that some commenters to

Page 52 GAO-16-278 Nonbank Servicers

CSBS’s proposed prudential standards and some nonbank

servicers we interviewed raised concerns that variations between

federal and state regulations could lead to regulatory burden.

However, we did not draw any conclusions on this matter.

• HUD commented that the rise of nonbank servicers might have

been a consequence of the increase in demand for loan servicer

services to cope with the additional problem loans with

delinquencies, defaults, loss mitigation efforts, loan modifications

and refinances, and foreclosures. It further noted that the shift in

MSRs to nonbank servicers might have been disproportionately

from those troubled loans that were more difficult and costly to

service. As such, HUD suggested that what might look like a

performance problem by these servicers might well have been an

improvement over what might have transpired without these new

entrants into the mortgage servicing industry. In our draft report,

we included a statement similar to HUD’s perspective that some

nonbank servicers expanded their businesses by specializing in

delinquent loans as delinquency rates rose to historic levels and

we acknowledged that along with some challenges, one of the

benefits provided by nonbank servicer growth was increased

capacity and improved consumer outcomes for delinquent loan

servicing.

As agreed with your offices, unless you publicly announce the contents of

this report earlier, we plan no further distribution until 30 days from the

report date. At that time, we will send copies to the appropriate

congressional committees and members and other interested parties.

This report will also be available at no charge on our website at

http://www.gao.gov. Should you or your staff have questions concerning

this report, please contact me at (202) 512-8678 or [email protected].

Contact points for our Offices of Congressional Relations and Public

Affairs may be found on the last page of this report. Key contributors to

this report are listed in appendix VIII.

Lawrance L. Evans, Jr.

Director, Financial Markets

and Community Investment

Appendix I: Objectives, Scope, and

Methodology

Page 53 GAO-16-278 Nonbank Servicers

The objectives of our report were to examine (1) the characteristics of

nonbank mortgage servicers and the recent trends in the mortgage

servicing industry, (2) the impact of nonbank servicers on consumers and

the mortgage market, and (3) the oversight framework for nonbank

servicers.

To examine trends in the shares of mortgage loans serviced by bank and

nonbank servicers, we used data from the Board of Governors of the

Federal Reserve System (Federal Reserve), the Federal Deposit

Insurance Corporation, the National Credit Union Administration, the

Federal Reserve Bank of Chicago, the Federal Financial Institutions

Examination Council (FFIEC), and the Bureau of Economic Analysis for

the period from the first quarter of 2012 through the second quarter of

2015.

Using these data, we first estimated the share of mortgages

serviced by (1) bank, financial, and savings and loan holding companies,

(2) insured depository institutions that are not subsidiaries of bank,

financial, or savings and loan holding companies, and (3) credit unions

(collectively referred to hereafter as banks). We estimated the share of

mortgages serviced by banks using the unpaid principal balance of

mortgages held by banks for investment, sale, or trading plus the unpaid

principal balance of mortgages banks serviced for others as a percentage

of the total unpaid principal balance of mortgages outstanding. We then

estimated the share of mortgages serviced by nonbanks as the

remainder. We assessed the reliability of the data from all the sources

previously listed for the purpose of estimating the share of mortgages

serviced by nonbank servicers by reviewing relevant documentation and

electronically testing the data for missing values, outliers, and obvious

errors, and we found them to be sufficiently reliable for this purpose.

Our estimates of the share of mortgages serviced by nonbank servicers

are subject to limitations and should be interpreted with caution.

For the purposes of this report, we defined banks as bank holding companies, financial

holding companies, savings and loan holding companies, insured depository institutions,

and credit unions. We refer to these entities collectively as “banks.” We define nonbank

servicers as entities that are not bank servicers.

For the purposes of this report, we consider mortgages to be home mortgage loans,

defined as loans secured by residential properties. These include loans secured by

properties with up to four units and farm houses, as well as home equity loans and home

equity lines of credit, but exclude other loans (i.e., those secured by multifamily,

commercial, and other farm properties).

Appendix I: Objectives, Scope, and

Methodology

Examining Trends in the

Mortgage Servicing

Industry

Appendix I: Objectives, Scope, and

Methodology

Page 54 GAO-16-278 Nonbank Servicers

• First, a key assumption underlying our methodology is that banks

service all of the mortgages that they hold for investment, sale, or

trading. To the extent that they do not do so, our estimate of the share

of mortgages serviced by banks is too high.

• Second, our estimates of mortgages serviced by bank, financial, and

savings and loan holding companies are derived from data from the

Federal Reserve’s Form FR Y-9C, which is reported on a

consolidated basis and thus reflects all of the subsidiaries of the bank

holding company, including both depository institution and non-

depository institution subsidiaries. However, only bank, financial, and

savings and loan holding companies with assets at or above a certain

threshold file Form FR Y-9C. This threshold was $500 million through

the fourth quarter of 2014 and increased to $1 billion starting in the

first quarter of 2015. For bank, financial, and savings and loan holding

companies with assets at or above the threshold, our estimates of

mortgages serviced reflect mortgages serviced by both depository

institution and non-depository institution subsidiaries. For bank,

financial, and savings and loan holding companies with assets below

the threshold, our estimates of mortgages serviced reflect only

mortgages serviced by the depository institution subsidiaries as

reported on forms FFIEC 031and 041 and do not reflect mortgages

serviced by any non-depository institution subsidiaries. To the extent

that non-depository institution subsidiaries of bank, financial, and

savings and loan holding companies with assets below the threshold

service mortgages, our estimates of the share of mortgages serviced

by banks are too low and our estimates of the share of mortgages

serviced by nonbanks are too high.

• Finally, although we estimated mortgages serviced by nonbanks as

the difference between all mortgages and mortgages serviced by

banks (including savings and loan holding companies), savings and

loan holding companies did not report consolidated data on

mortgages held for investment, sale, or trading and mortgages

serviced for others prior to 2012. Starting in the first quarter of 2012,

savings and loan holding companies filed Form FR Y-9C, which

includes data on mortgages held for investment, sale or trading or

mortgages serviced for others. Prior to that time, consolidated data on

savings and loan holding companies were available through the Thrift

Financial Reports, but those data did not include mortgages held for

investment, sale, or trading or mortgages serviced for others. Thus,

we cannot use our approach to estimate mortgages serviced by

nonbanks prior to the first quarter of 2012.

Appendix I: Objectives, Scope, and

Methodology

Page 55 GAO-16-278 Nonbank Servicers

To estimate the share of mortgages serviced by the 10 largest nonbank

servicers as a percentage of all mortgages serviced by nonbanks, to

determine mortgages serviced by the 20 largest servicers as a

percentage of all mortgages, and to determine the number of nonbank

servicers among the 20 largest servicers, we used data from Inside

Mortgage Finance (IMF), the Nationwide Multistate Licensing System

(NMLS), the National Information Center (NIC), and various company

websites as well as our estimates of the unpaid principal balance of

mortgages serviced by all nonbanks as described above. Specifically, we

used data from IMF to identify the largest servicers by unpaid principal

balance of mortgages serviced as well as the total unpaid principal

balance of all mortgages serviced, and we used data from NMLS, NIC,

and various company websites to determine whether those servicers

were banks or nonbanks. To determine the amount of mortgages

serviced by the 10 largest nonbank servicers, we used data as of the

second quarter of 2015.

To identify the 20 largest servicers and their

share of mortgages serviced, we used data as of the first quarter of 2012

and the second quarter of 2015.

We used company websites and NMLS

and searched individual bank and nonbank servicer names in the NIC

database to verify whether servicers met our definition of a nonbank and

to exclude entities that are banks or nonbank affiliates of banks. To

determine the reliability of data from IMF, NMLS, and NIC, we reviewed

publicly available information on the data sources, and we determined the

data were sufficiently reliable to estimate the shares of home mortgages

serviced.

To estimate trends in market concentration for the mortgage servicing

industry, we used data from IMF. To estimate the market concentration of

the mortgage servicing industry and examine trends in market

concentration, we calculated the Herfindahl-Hirschman Index (HHI)—a

measure commonly used to assess the competitive environment of a

market and enforce U.S. antitrust laws—as of the fourth quarter for each

year from 2006 through 2014. We assessed the reliability of IMF data for

the purpose of calculating the HHI by reviewing relevant documentation

and selectively tracing data to source documents, and we found the data

Inside Mortgage Finance, Issue 2015:36 (Bethesda, Md.: Inside Mortgage Finance

Publications, 2015).

Inside Mortgage Finance, Issue 2015:36; Inside Mortgage Finance, Issue 2012:20

(Bethesda, Md.: Inside Mortgage Finance Publications, 2012).

Appendix I: Objectives, Scope, and

Methodology

Page 56 GAO-16-278 Nonbank Servicers

to be sufficiently reliable for this purpose. See appendix II for details on

our market concentration analysis.

To estimate the percentage of mortgages serviced by nonbank servicers

(by unpaid principal balance) that are held in mortgage-backed securities

(MBS) guaranteed by Fannie Mae and Freddie Mac (the enterprises) or

the Government National Mortgage Association (Ginnie Mae) or owned

by the enterprises, we used data from Ginnie Mae, the enterprises, and

SNL Financial as of the second quarter of 2015. Ginnie Mae and Fannie

Mae each provided data on the total unpaid principal balance of

mortgages serviced by all of their approved servicers and by their

approved nonbank servicers. In addition, using an SNL Financial list of

banks and Freddie Mac data fields that indicated institution type, we

determined Freddie Mac’s bank and nonbank servicers. Using these data

as well as data on the unpaid principal balance serviced that Freddie Mac

provided, we calculated the percentage of mortgages in Freddie Mac’s

MBS and portfolio serviced by nonbank servicers. Our methodology for

identifying bank and nonbank servicers using data from Freddie Mac is

subject to limitations, as discussed in appendix III. Despite these

limitations, we found the data to be sufficient for our purpose to

distinguish between Freddie Mac’s bank and nonbank servicers.

To estimate the number of nonbank servicers operating in the mortgage

servicing industry as of the second quarter of 2015, we used data from

Ginnie Mae and the enterprises. We combined our determined list of

Freddie Mac’s nonbank servicers (as previously described) with the lists

of approved nonbank servicers provided by Ginnie Mae and Fannie Mae

and eliminated duplicate names of nonbank servicers that are servicing

for more than one of these entities. The list of nonbank servicers we

determined can be found in appendix III. While the enterprises could have

provided us with historical bank/nonbank classification data on their

mortgage servicers, to do so would have required an excessive level of

manual effort due to frequent corporate mergers and acquisitions and

related servicer changes over time.

To estimate the shares of delinquent loans serviced by banks and

nonbank servicers, we used data from Ginnie Mae, the enterprises, and

SNL Financial for the second quarter of 2015. For this analysis, we

considered a loan to be delinquent if it was 90 days or 3 months or more

past due or in foreclosure. Using data from Freddie Mac, we calculated

the average share of delinquent loans for bank and nonbank servicers

separately by first calculating the number of delinquent loans as a

percentage of all loans serviced for each servicer and then calculating the

Appendix I: Objectives, Scope, and

Methodology

Page 57 GAO-16-278 Nonbank Servicers

average (mean) shares for bank and nonbank servicers. We obtained the

results of the same calculation from Ginnie Mae and Fannie Mae. To

assess the reliability of Ginnie Mae and enterprise data for the purpose of

estimating the percentage of mortgages serviced by nonbanks and

delinquent loans as a share of all loans for bank and nonbank servicers,

we compared the data with other publicly available data and interviewed

knowledgeable staff from the enterprises and Ginnie Mae, and we

determined the data to be sufficiently reliable.

To analyze the benefits and risks associated with nonbank mortgage

servicers and assess the effect of a large servicer’s failure on the market

and consumers, we reviewed relevant literature on mortgage servicing, as

described later. Further, we interviewed federal and state regulators,

consumer groups, and nonbank servicers. We also interviewed

representatives from the enterprises; Ginnie Mae; the Federal Housing

Administration and other federal agencies that insure loans in Ginnie

Mae-guaranteed mortgage-backed securities (MBS); industry

organizations that represent banks and mortgage servicers; rating

agencies that rate MBS performance; third parties in the mortgage

servicing industry, such as mortgage servicing brokers and market

researchers; and companies that invest in mortgage servicing rights

(MSR), such as real estate investment trusts (we refer to this group

collectively as “market participants” in this report unless otherwise noted).

In particular, to assess the risks and benefits of nonbank servicers of

delinquent loans, we reviewed two academic studies, identified in our

literature search, in more detail. One study compared the effectiveness of

banks and nonbanks as servicers of delinquent subprime loans in private-

label securities.

The other study analyzed the incentives of mortgage

servicers and potential risks of those incentives for market participants

and consumers.

We reviewed the methodologies used in the two studies

and determined that they used reasonable methodologies to analyze the

issues they raised. While multiple reviewers determined that these

Carolina K. Reid, Michael J. Collins, and Carly Urban, “Servicer Heterogeneity: Does

Servicing Matter for Loan Cure Rates?,” University of California, Berkeley: Fisher Center

for Real Estate and Urban Economics Working Paper Series (2014).

See Adam Levitin, J. and Tara Twomey, Mortgage Servicing, 28 Yale J. on Reg. 1-90

(2011).

Examining the Effects of

Nonbank Servicers on

Consumers and the

Mortgage Market

Appendix I: Objectives, Scope, and

Methodology

Page 58 GAO-16-278 Nonbank Servicers

studies are reliable for research purposes, we note that they have

limitations and are not necessarily definitive.

To identify examples of operational difficulties that nonbank servicers

might encounter, we reviewed examinations of nonbank mortgage

servicers conducted by the Consumer Financial Protection Bureau

(CFPB), focusing on the types of issues the examinations identified. For

each CFPB examination, we identified the number of matters requiring

attention; all areas CFPB reviewed and all violations within those areas,

including the quality of the servicer’s risk controls and loss mitigation, the

servicer’s consumer compliance rating, the overall risk assessed of the

servicer, and the expected change in direction of risk; and whether CFPB

issued a required corrective action for each area.

To review the CFPB

examination files, one analyst reviewed and noted the examination

findings, a second analyst independently reviewed those results, and then

both analysts resolved any discrepancies and agreed on a final summary

list of examination findings. However, examination findings are not

representative of the broader population of nonbank mortgage servicers

because CFPB uses a risk-based framework to select servicers for

examination and conducts follow-up examinations of some servicers.

Although CFPB provided a list of nonbank servicers examined since

August 2015, the identities of examined servicers were deleted in the

examination reports we reviewed due to the sensitive nature of such

information. Similarly, to compare operational risks between bank and

nonbank servicers, we analyzed the results of servicer examinations from

the enterprises for their five largest bank and nonbank servicers based on

unpaid principal balance serviced, respectively.

The review process

included one analyst comparing examination results between bank and

nonbank servicers, whose analysis was verified by a second analyst.

Although examination findings and qualitative assessments sometimes

included servicers’ performance as a seller of mortgages to the

enterprises in addition to their servicing operations, we still used these as

an indicator of a servicers’ operational risk level. Each servicer

To conduct their examinations, CFPB selectively may review an organization’s broader

system for compliance management and up to 11 review modules, including an “other”

review module, focused on the servicer’s actual servicing performance. CFPB also

conducts two types of examinations: point-in-time examinations, which assess servicers’

overall servicing performance, and target examinations, which focus on specific areas for

review and include fewer examination steps.

For one enterprise, we analyzed examinations of their six largest bank servicers.

Appendix I: Objectives, Scope, and

Methodology

Page 59 GAO-16-278 Nonbank Servicers

examination identified needed corrective actions, which were categorized

by level of risk. The enterprises used different terminology to categorize

the risk posed by each examination finding (e.g., “high risk,” “low risk”),

but the terms were similar enough to compare findings between the

enterprises. We calculated the number of bank and nonbank servicers

that received a “satisfactory” or “needs improvement” rating from the

enterprises, and compared the results.

To learn more about the possible effects of a large nonbank servicer’s

failure on the servicing market and consumers, we asked all parties we

interviewed—including nonbank servicers, regulators, market participants,

consumer groups and others, as described later—about the potential

consequences of a servicer’s failure. We also reviewed relevant

publications by government agencies, the enterprises, Ginnie Mae, and

rating agencies on the consequences of past failures, as discussed later.

To analyze the extent to which the increased participation of nonbank

servicers might decrease the effect of a large servicer’s failure by

providing excess servicing capacity to the market, we reviewed

documentation of servicer capacity agreements from the enterprises. One

analyst independently reviewed the agreements and a second analyst

verified the results. A third analyst reviewed the enterprises’ respective

explanations of how they projected excess servicing capacity and

determined them to be reliable for our purpose of comparing the excess

capacity of their bank and nonbank servicers.

To describe the oversight structure for nonbank servicers, we reviewed

literature, as described later, and conducted interviews with regulators

and market participants to identify the entities that have a role in

monitoring the activities of nonbank servicers. First, to analyze the

regulatory framework for nonbank mortgage servicers, we reviewed

applicable laws and regulations governing mortgage servicing activities,

including consumer protection and debt collection laws. We interviewed

officials from CFPB on their oversight process for nonbank servicers,

such as examinations, enforcement of applicable laws and regulations,

and data collection. We reviewed reports of examinations of nonbank

servicers as evidence that CFPB had conducted such examinations since

the initiation of examination programs in 2012. We interviewed Federal

Housing Finance Agency (FHFA) officials about their oversight of the

enterprises’ practices to manage risks associated with servicers and the

agency’s authority to examine third parties that conduct business with the

Assessing the Potential

Impact of a Nonbank

Servicer’s Failure

Evaluating the Oversight

Framework for Nonbank

Servicers

Appendix I: Objectives, Scope, and

Methodology

Page 60 GAO-16-278 Nonbank Servicers

enterprises. We also reviewed recently implemented and proposed

regulations and standards from CFPB, FHFA, and the Conference of

State Bank Supervisors (CSBS), and we interviewed those agencies’

officials and selected market participants about the potential effects of

those regulations on nonbank servicers and consumers. We analyzed 26

comment letters submitted by various companies and groups regarding

CSBS’s proposed prudential standards for nonbank servicers as of June

23, 2015. One analyst created a summary of common themes from the

comment letters, which were verified by a second analyst. We compared

the current regulatory framework to GAO’s criteria for a sound financial

regulatory framework.

As additional criteria, we reviewed a

recommendation by the Financial Stability Oversight Council (FSOC) for

identifying supervised entities and examining third parties.

Using CSBS

data, we determined the various licensing requirements for nonbank

servicers, and our analysis identified that 17 states and U.S. territories

require specific licenses for nonbank servicers, 19 states, including one

district, require general licensing authority for nonbank entities to engage

in mortgage-related activities, and 17 states and U.S. territories do not

require licenses. To understand state oversight of nonbank servicers, we

selected five states based on the following criteria:

• two states that require specific licenses applications for mortgage

servicing;

• one state that licenses mortgage servicers through a general licensing

authority that may allow mortgage-related activities, including

servicing; and

• two states that do not require licenses for nonbank servicers.

In addition to interviews with selected state regulators, we verified our

findings with officials from CSBS and the American Association of

Residential Mortgage Regulators and determined that the data were

reliable for the purpose of identifying licensing requirements.

GAO, Financial Regulation: A Framework for Crafting and Assessing Proposals to

Modernize the Outdated U.S. Financial Regulatory System, GAO-09-216 (Washington,

D.C.: Jan. 8, 2009).

Financial Stability Oversight Council, Annual Report ( 2015).

One of the two states that require specific license applications did not respond to our

request for information.

Appendix I: Objectives, Scope, and

Methodology

Page 61 GAO-16-278 Nonbank Servicers

To estimate the percentage of all outstanding mortgages whose servicers

are subject to monitoring by Ginnie Mae, the government sponsored

enterprises (including Fannie Mae and Freddie Mac), federal and state

bank regulators, and other federal agencies, we used Federal Reserve

data to calculate the percentage of all outstanding mortgages that were

held in Ginnie Mae, Fannie Mae, or Freddie Mac MBS or that were held

by U.S.-chartered banks, credit unions, banks in U.S.-affiliated areas,

foreign banking offices in the U.S., federal agencies (including Ginnie

Mae), or government sponsored enterprises for the second quarter of

2015.

We assessed the reliability of Federal Reserve data by reviewing

relevant documentation, and we found the data to be sufficiently reliable

for the purpose of estimating the percentage of outstanding home

mortgages by servicers in this category.

To describe the oversight of nonbank servicers by entities that employ

their services, we reviewed documents, such as servicer guidance and

reports, from Ginnie Mae, the enterprises, the Federal Housing

Administration, the Rural Housing Service and the Department of

Veterans Affairs regarding their capital and operational requirements for

servicers. We also interviewed representatives from an organization

representing private mortgage insurers regarding their monitoring

activities. In addition, we interviewed representatives from companies that

invest in MBS or own mortgage loans about their servicer requirements

and their processes for monitoring servicer activities and performance.

To understand recent trends, effects on consumers, and the oversight

framework of nonbank servicers in the mortgage servicing industry, we

conducted interviews with the following:

• officials from CFPB; the Federal Housing Administration and Ginnie

Mae at the Department of Housing and Urban Development; FSOC

and the Office of the Comptroller of the Currency at the U.S.

Department of the Treasury;

FHFA and the FHFA Office of Inspector

For the purposes of this analysis, government sponsored enterprises in addition to

Fannie Mae and Freddie Mac that own home mortgages are the Federal Home Loan

Banks and the Farm Credit System, and federal agencies in addition to Ginnie Mae that

own home mortgages are the Federal Housing Administration, the Department of

Veterans Affairs, the Department of Agriculture, and the Federal Deposit Insurance

Corporation.

FSOC officials were not interviewed but provided written comments on our report.

Interviews with Regulatory

Officials, Market

Participants and

Consumer Groups

Appendix I: Objectives, Scope, and

Methodology

Page 62 GAO-16-278 Nonbank Servicers

General; the Rural Housing Service at the U.S. Department of

Agriculture; and the Department of Veterans Affairs.

• officials from CSBS, a rulemaking and representative organization of

financial regulators from all 50 states, the District of Columbia, Puerto

Rico, and the U.S. Virgin Islands;

• representatives from 10 nonbank servicers, including 9 of the 10

largest nonbank servicers, selected based on outstanding unpaid

principal balance serviced. These 9 nonbank servicers serviced

approximately 77.6 percent of the total outstanding unpaid principal

balance serviced by all nonbank servicers as of December 31, 2014.

We also interviewed representatives from the largest nonbank sub-

servicer— a third-party mortgage servicer that has no fiduciary ties to

or investment in the loans they service —as of March 31, 2015.

• representatives from the enterprises, as issuers of MBS with

underlying loans that are serviced by bank and nonbank servicers

regarding their respective servicer requirements and capacity.

• representatives from four industry associations that were selected

because they represent bank and nonbank servicers with a broad

range of views and professional experiences related to mortgage

servicing, including two that represent smaller nonbank mortgage

servicers.

The associations were identified based on their published

reports about nonbank servicers and recommendations by other

interviewees.

• representatives from two rating agencies that rate the performance of

MBS. They were selected based on their research specifically on

nonbank servicers;

One of the 10 largest nonbank servicers declined our request for an interview.

For the purposes of this report, smaller nonbank servicers are nonbank servicers that

were not 1 of the 10 largest nonbank servicers as of December 31, 2014.

Appendix I: Objectives, Scope, and

Methodology

Page 63 GAO-16-278 Nonbank Servicers

• the monitor of the National Mortgage Settlement;

• one academic and representatives from four research firms, based on

their research on the mortgage servicing industry.

• representatives from two companies that invest in mortgage servicing

rights, including one private investor and one real estate investment

trust, which were selected based on our review of background articles

and reports, as described below; and

• representatives from three consumer groups that have expertise in

the affordable housing field, the mortgage market, and consumer law.

These groups were selected because of their members’ knowledge

about the extent to which nonbank servicers may expose consumers

and other institutions to their financial and operational risks (as

opposed to issues with the quality of servicing).

To understand the mortgage market and the role of market participants,

including nonbank servicers, we reviewed studies by GAO and

publications related to the oversight of mortgage servicers and relevant

federal regulations, notices that govern the operations of mortgage

servicers. We also completed a literature search and reviewed recent

reports and articles related to mortgage servicing and nonbank servicers,

including academic and government reports, as well as articles and

documents by or about the officials and market participants we

interviewed, as described previously. We identified relevant literature for

review by searching several databases, including Nexis.com and

ProQuest, using the following terms: “bank,” “nonbank,” “home lending,”

“mortgage servicing,” “origination,” and names of nonbank servicers,

dating back to the 2007-2009 financial crisis. We also identified literature

based on recommendations from the interviewees previously described.

On February 9, 2012, the U.S. Attorney General announced that the federal government

and 49 states had reached a settlement agreement with the nation’s five largest mortgage

servicers to address mortgage servicing, foreclosure, and bankruptcy abuses (the

“National Mortgage Settlement”). The monitor oversees the servicers and ensures their

compliance with the agreement. The participating servicers must file regular reports with

the monitor to detail their compliance. Based on these reports as well as its independent

oversight, the monitor makes its own determinations on servicer performance and then

issues its own reports to the courts and the participants on a semiannual basis. See

United States v. Bank of America Corp., No. 1:12-cv-00361 (D.D.C. Apr. 4, 2012)

Literature Review

Appendix I: Objectives, Scope, and

Methodology

Page 64 GAO-16-278 Nonbank Servicers

We used the reports and articles to provide background information and

context about nonbank servicers in the mortgage market.

We conducted this performance audit from February 2015 to March 2016

in accordance with generally accepted government auditing standards.

Those standards require that we plan and perform the audit to obtain

sufficient, appropriate evidence to provide a reasonable basis for our

findings and conclusions based on our audit objectives. We believe that

the evidence obtained provides a reasonable basis for our findings and

conclusions based on our audit objectives.

Appendix II: GAO Analysis of Market

Concentration

Page 65 GAO-16-278 Nonbank Servicers

To estimate the market concentration of the mortgage servicing industry

and examine trends in market concentration, we calculated the

Herfindahl-Hirschman Index (HHI)—a measure commonly used to assess

the competitive environment of a market and enforce U.S. antitrust laws—

as of the fourth quarter for each year from 2006 through 2014. Market

concentration is an indicator of the extent to which firms in the market can

exercise market power—that is, raise prices, reduce output, diminish

innovation, or otherwise harm customers as a result of weakened

competitive constraints or incentives. The HHI equals the sum of the

squared market shares of each firm operating in a market and thus

reflects both the number of firms in the market and each firm’s relative

size.

The HHI ranges from 10,000 (if there is a single firm in the market)

to a number approaching zero (in the case of a perfectly competitive

market). Department of Justice (DOJ) and Federal Trade Commission

(FTC) guidelines suggest that markets with HHIs less than 1,500 are not

concentrated, those with HHIs greater than or equal to 1,500 and less

than 2,500 are moderately concentrated, and those with HHIs of 2,500 or

more are highly concentrated, although other factors play a role.

Using

data from Inside Mortgage Finance, we defined the mortgage servicing

market for each period as the total unpaid principal balance serviced by

the 40 largest mortgage servicers and calculated each firm’s market

share as a percentage of that unpaid principal balance.

We assessed the

reliability of data from Inside Mortgage Finance for the purpose of

calculating the HHI by reviewing relevant documentation and selectively

tracing data to source documents, and we found the data to be sufficiently

reliable for this purpose.

For example, a market with four firms with market shares of 30 percent, 30 percent, 20

percent, and 20 percent would have an HHI of 2,600 (30

+ 30

+ 40

= 900 + 900 +

400 + 400 = 2,600).

Department of Justice and Federal Trade Commission, Horizontal Merger Guidelines

(Aug.19, 2010).

The 40 largest servicers for each period may vary. For data on the 40 largest servicers

from 2006 to 2012, see Inside Mortgage Finance, The 2013 Mortgage Market Statistical

Annual, (Bethesda, Md.; Inside Mortgage Finance Publications, 2013); for 2013 data on

the 40 largest servicers, see Inside Mortgage Finance, Mortgage Market Statistical Annual

2014 Yearbook, (Bethesda, Md.: Inside Mortgage Finance Publications, 2014); and for

2014 data, see Inside Mortgage Finance, Mortgage Market Statistical Annual 2015

Yearbook, (Bethesda, Md.: Inside Mortgage Finance Publications, 2015).

Appendix II: GAO Analysis of Market

Concentration

Appendix II: GAO Analysis of Market

Concentration

Page 66 GAO-16-278 Nonbank Servicers

Our analysis of market concentration has limitations and should be

interpreted with caution. Although we evaluate our estimate of the HHI for

the mortgage servicing market using DOJ/FTC guidelines, we did not

define the market for mortgage servicing using DOJ/FTC guidelines for

defining antitrust markets. Rather, we calculated the HHI for the U.S.

mortgage servicing industry using shares of outstanding mortgages in the

United States serviced by the 40 largest servicers each year.

Because

Inside Mortgage Finance data are limited to the 40 largest mortgage

servicers for 2006 and 2007, we limited the servicers included in our

calculations for all years, from 2006 through 2014, to the 40 largest

servicers to treat each period consistently. Thus, we treated the 40

largest servicers for each period as the only competitors in the market. To

the extent that the industry is segmented by regions, states, or other

subnational areas, the HHIs for the mortgage servicing industry within

those areas may differ from the HHI for the U.S. mortgage servicing

industry as a whole. Additionally, many other factors contribute to the

actual degree of concentration in a market, and the HHI can only indicate

the potential for firms to exercise market power; it does not imply that

firms will actually choose to exercise market power in ways that are

detrimental to consumers.

Our analysis suggests that the mortgage servicing industry was likely

unconcentrated throughout the period from the fourth quarter of 2006

through the fourth quarter of 2014, although it was more concentrated

leading up to and during the 2007-2009 financial crisis. Our analysis also

suggests that the mortgage servicing market has likely become less

concentrated since 2009. Figure 6 shows our estimates of the

concentration of the mortgage servicing industry for each year during this

period based on our analysis.

For the purposes of this report, we consider mortgages to be home mortgage loans,

defined as loans secured by residential properties. These include loans secured by

properties with up to four units and farm houses, as well as home equity loans and home

equity lines of credit, but exclude other loans (i.e., those secured by multifamily,

commercial, and other farm properties).

Appendix II: GAO Analysis of Market

Concentration

Page 67 GAO-16-278 Nonbank Servicers

Figure 6: Concentration in the Market for Mortgage Servicing, from Fourth Quarter

2006 through Fourth Quarter 2014

Note: To calculate the Herfindahl-Hirschman Index (HHI), we used data on the shares of home

mortgage loans serviced by the 40 largest mortgage servicers as of the fourth quarter of each year

from 2006 to 2014. The HHI is equal to the sum of the squared market shares of firms competing in a

market and ranges from 0 to 10,000, with larger values indicating more concentration. Department of

Justice (DOJ) and the Federal Trade Commission (FTC) guidelines suggest that markets with HHIs

less than 1,500 are not concentrated, those with HHIs greater than or equal to 1,500 and less than

2,500 are moderately concentrated, and those with HHIs of 2,500 and higher are highly concentrated,

although other factors play a role. Although we evaluate our estimate of the HHI for the mortgage

servicing market using DOJ/FTC guidelines, we did not define the market for mortgage servicing

using DOJ/FTC guidelines for defining antitrust markets. Rather, we calculated the HHI for the U.S.

mortgage servicing industry using shares of outstanding home mortgage loans in the United States

serviced by the 40 largest servicers each year. To the extent that the industry is segmented by

regions, states, or other subnational areas, the HHIs for the mortgage servicing industry within those

areas may differ from the HHI for the U.S. mortgage servicing industry as a whole. Due to data

limitations, this calculation only includes data on the shares of home mortgage loans serviced by the

40 largest mortgage servicers. As a result, the true HHIs for the mortgage servicing market are likely

smaller than the estimates presented here, suggesting the market is even less concentrated.

Appendix III: Nonbank Servicers Identified

during Audit

Page 68 GAO-16-278 Nonbank Servicers

We identified a partial list of nonbank mortgage servicers based on a

review of the servicing portfolios of Fannie Mae and Freddie Mac (the

enterprises) and Ginnie Mae. To generate this list, we requested and

received a list of nonbank mortgage servicers associated with Ginnie

Mae’s portfolio from the agency and a similar list from Fannie Mae, based

on our definition of “nonbank servicer” provided to both.

We also

obtained a list from Freddie Mac of all mortgage servicers, banks and

nonbanks, associated with Freddie Mac’s servicing portfolio. Freddie

Mac’s list contained identifiers that allowed us to reliably distinguish

between bank and nonbank mortgage servicers; however some entities’

classifications were ambiguous. For those cases, we implemented a

methodology to eliminate bank mortgage servicers from the Freddie Mac

data, as explained below. We combined the resulting list of nonbank

mortgage servicers derived from Freddie Mac’s data with the lists of

nonbank mortgage servicers provided by Ginnie Mae and Fannie Mae.

We then standardized the spelling of company names and eliminated

apparent duplicates. The 641 servicers in table 3 below reflect only those

servicers we identified based on Ginnie Mae and enterprise data; other

servicers are not included. For example, in 2012, CFPB officials

estimated that there were approximately 1,300 nonbank servicers for

residential mortgage loans, based on their analysis of data from the

Conference of State Bank Supervisors (CSBS) and other industry data

sources. As a result, this is not a comprehensive list of nonbank mortgage

servicers and should not be treated as a complete listing of these entities.

Freddie Mac nonbank mortgage servicers included in this list are those

that remained after we took a series of steps to remove bank mortgage

servicers from the full list of Freddie Mac mortgage servicers we received

from the agency. First, we considered an entity to be a bank and

excluded it if it was identified by the enterprise as a commercial bank,

credit union, or savings association in any field associated with the entity.

Using first a unique regulatory identification number (ID) and then name

of the entity, we also excluded any entity that appeared in the SNL

Financial (SNL) list of all regulated U.S. depository institutions.

For the purposes of this report, we defined banks as bank holding companies, financial

holding companies, savings and loan holding companies, insured depository institutions,

and credit unions, including any affiliates or subsidiaries of these types of institutions. For

the purposes of this report, we refer to these entities collectively as “banks.” We define

nonbank servicers as entities that are not bank servicers.

SNL is a private service that aggregates and disseminates data from quarterly regulatory

reports, among other information.

Appendix III: Nonbank Servicers Identified

during Audit

Appendix III: Nonbank Servicers Identified

during Audit

Page 69 GAO-16-278 Nonbank Servicers

matched the two lists by ID and name at both the servicer and corporate

parent/holding company level when possible. If a Freddie Mac servicer’s

ultimate parent was identified as a bank by SNL, we considered the

servicer to be a bank mortgage servicer. Therefore a servicer was

eliminated from our list if it was a bank; if it was owned by a bank; or if its

owner also owned a bank. Some entities did not have an ID to permit a

robust crosschecking against SNL’s master list of banks. In those cases

we relied on matches by name, which introduced some potential for error

into the identification procedure.

As noted earlier, the list in table 3 is not exhaustive of all nonbank

mortgage servicers and is subject to error due to our methodology for

coding nonbank mortgage servicers in Freddie Mac’s list of servicers.

Specifically, our method for identifying nonbank servicers is imperfect and

may have resulted in some identification error, particularly for those

institutions in Freddie Mac’s portfolio that we were not able to crosscheck

against the SNL database of banks using a unique identifier. In some

cases we were not able to distinguish similarly named institutions from

each other, specifically when there was no state information to assist in

identification. As a result, table 3 may contain some depository institutions

or affiliates and subsidiaries of depository institutions or financial holding

companies, may exclude some nonbanks that actually met our criteria for

inclusion or may contain some duplicates. Also, because we designated

nonbank affiliates and subsidiaries of insured depository institutions as

banks, we have excluded some entities others might designate as

nonbank servicers. Further, some companies’ names may be affected by

our standardization exercise or may have typographic errors related to

the primary datasets we use to construct the master list. Lastly, some

servicers listed in Table 3 may no longer be active due to merger,

acquisition or bankruptcy.

Table 3: Select Nonbanks Servicers Identified through Ginnie Mae and the

Enterprises by Location

Nonbank Servicer as identified

Location

1st 2nd Mortgage Company Of NJ, Inc.

1st Alliance Lending, LLC

1st Republic Mortgage Bankers, Inc.*

1stpalm Financial Services, LLC*

21st Mortgage Corporation

360 Mortgage Group, LLC

A+ Mortgage Services, Inc.

Appendix III: Nonbank Servicers Identified

during Audit

Page 70 GAO-16-278 Nonbank Servicers

Nonbank Servicer as identified

Location

Academy Mortgage Corporation

Acopia, LLC

ACRE Capital LLC

Advantage Investors Mortgage Corporation*

Advisors Mortgage Group, LLC

Aegis Mortgage Corporation*

Affiliated Mortgage Company

Agfirst Farm Credit Bank

Agstar Financial Services

AKT American Capital, Inc.

Alabama Housing Finance Authority

Alliance Financing Mortgage Company*

Allied Home Mortgage Corporation*

Allied Mortgage Group, Inc.

Almandine Residual Holder I, LLC*

Alpha Mortgage Corporation*

Amcap Mortgage, Ltd.

Amegy Mortgage Company, LLC

America First Tax Exempt Investors, L.P.*

American Bancshares Mortgage, LLC

American Bantrust Mortgage Services Corporation*

American Federal Mortgage Corporation

American Finance House LARIBA

American Financial Network, Inc.

American Financial Resources, Inc.

American Home Mortgage Corporation*

American Home Mortgage Acceptance, Inc.*

American Internet Mortgage, Inc. DBA Aimloan.Com

American Mortgage Service Company

American Neighborhood Mortgage

American Neighborhood Mortgage Acceptance Company

American Pacific Mortgage Corporation

American Portfolio Mortgage Corporation

Americash

AmeriFirst Financial Corporation

Amerifirst Financial, Inc.

Amerihome Mortgage Corporation, LLC

Appendix III: Nonbank Servicers Identified

during Audit

Page 71 GAO-16-278 Nonbank Servicers

Nonbank Servicer as identified

Location

Amerihome Mortgage Company, LLC

Ameripro Funding

Amerisave Mortgage Corporation

Ameritrust Mortgage Corporation

Amerus Mortgage, Inc.*

Angel Oak Home Loans LLC

Apex Home Loans, Inc.

Arbor Commercial Mortgage, LLC

Ark-La-Tex Financial Services, LLC

Arkansas Development Finance Authority

Armstrong Mortgage Company

Arvest Mortgage Company

Aspire Financial, Inc.

Assurance Financial Group, LLC

Atlantic Bay Mortgage Group, Inc.

Atlantic Home Loans, Inc.

Atlantic Pacific Mortgage Corporation

Augusta Mortgage Company

Aurora Financial Group, Inc.

Axia Financial, LLC

Backend Mortgage Insurance*

Bankers Guarantee Title & Trust

Barrons Mortgage Group

Bay Equity, LLC

Bay Valley Mortgage Group

Bayview Loan Servicing, LLC

Bellwether Enterprise Real Estate Capital, LLC*

Berkadia Commercial Mortgage LLC

Berkeley Point Capital LLC

Blair Services of America Inc.

Bogman Inc.

Broadhollow Funding*

Broadview Mortgage Corporation

Broker Solutions, Inc. DBA New American Funding

BVRT 2015-1 Trust*

C. U. Mortgage Services, Inc.

Caliber Home Loans, Inc.

Appendix III: Nonbank Servicers Identified

during Audit

Page 72 GAO-16-278 Nonbank Servicers

Nonbank Servicer as identified

Location

California Housing Finance Agency

California Mortgage Advisors, Inc.

C&F Mortgage Corporation

Capital Center LLC

Capital International Financial Inc.

Capmark Finance, Inc.*

Cardinal Financial Company

Cardinal Financial Company, L.P.

Carnegie Mortgage, LLC

Carrington Mortgage Services, LLC

Carteret Mortgage Corporation*

Cashcall, Inc.+*

Castle & Cooke Mortgage, LLC

Castle Mortgage Corporation

Catalyst Lending

CBRE Capital Markets, Inc.

Cendera Funding

100

Centennial Corporate Financial*

101

Centerline Mortgage Partners Inc.

102

Central Mortgage Corporation*

103

Century Mortgage Corporation*

104

Century Mortgage CO. dba Century Lending

105

Cherry Creek Mortgage Company, Inc.

106

Chicago Mortgage Solutions Corp dba InterBank Mortgage Company

107

Chimera Investment Corporation*

108

Churchill Mortgage Corporation

109

CIS Financial Services, Inc.

110

Citizens First Wholesale Mortgage

111

Citywide Home Loans, a Utah Corporation

112

Clearwater Mortgage, LLC*

113

CMC Funding, Inc.

114

CMG Mortgage, Inc.

115

CMS Mortgage Group, Inc.*

116

Coastal States Mortgage Corporation*

117

Cobalt Mortgage, Inc.

118

Collateral Mortgage, Ltd.*

Appendix III: Nonbank Servicers Identified

during Audit

Page 73 GAO-16-278 Nonbank Servicers

Nonbank Servicer as identified

Location

119

Colorado Housing And Finance Authority

120

ColumbiaNational Real Estate Finance, LLC

121

Commerce Home Mortgage, Inc.

122

Commerce Mortgage Corporation

123

Commonwealth Mortgage, LLC

124

Community Banc Mortgage Company

125

Community Mortgage Funding LLC

126

Community Reinvestment Fund, Inc.

127

Compu-Link Corporation dba Celink

128

Comunity Lending, Inc.*

129

Continental Home Loans, Inc.*

130

Continental Mortgage Bankers, Inc.

131

Cornerstone Home Lending, Inc.

132

Cornerstone Mortgage, Inc.

133

Corridor Mortgage Group, Inc.

134

Countryplace Mortgage, Ltd.

135

Credit Suisse First Boston Mortgage Capital LLC

136

Credit Union Mortgage Association

137

Crescent Mortgage Company

138

Crosscountry Mortgage, Inc.

139

Crossline Capital, Inc.*

140

Crown Mortgage Company

141

CTX Mortgage Company, LLC*

142

Cuso Development Company, LLC

143

Cuso Mortgage Corporation

144

DAS Acquisition Company, LLC

145

Data Mortgage Inc.

146

Davis-Penn Mortgage Company

147

de Oro Home Loans*

148

Delmar Financial Company

149

Deval, LLC*

150

Developer'S Mortgage Company

151

DHI Mortgage Company, Ltd.

152

Direct Mortgage Corporation

153

Ditech Financial, LLC

154

DLJ Mortgage Capital, Inc.

155

DMR Financial Services, Inc.*

Appendix III: Nonbank Servicers Identified

during Audit

Page 74 GAO-16-278 Nonbank Servicers

Nonbank Servicer as identified

Location

156

Dollar Mortgage Corporation*

157

Dovenmuehle Mortgage, Inc.

158

Draper And Kramer Mortgage Corp DBA 1st Advantage Mortgage

159

E Mortgage Management, LLC

160

Eastland Financial Corporation

161

Embrace Home Loans, Inc.

162

EMI Equity Mortgage, Inc.

163

Encore Mortgage Services, Inc.*

164

Envoy Mortgage, Ltd.

165

Equity Loans, LLC

166

Equity Mortgage Corporation*

167

Equity Now Inc.

168

Equity Resources, Inc.

169

Eustis Mortgage Corporation

170

Everett Financial Inc DBA Supreme Lending

171

Evergreen Moneysource Mortgage DBA Evergreen Home Loans

172

Fairmont Funding, Ltd.*

173

Fairway Independent Mortgage Corporation

174

Fay Servicing, LLC

175

FBC Mortgage, LLC

176

FCI Lender Services, Inc.

177

Fearon Financial, LLC

178

Fed Funding Mortgage Corporation*

179

Fidelity Home Mortgage Corporation*

180

Fidelity Mortgage Corporation*

181

Finance Of America Mortgage LLC

182

Financial Partners Credit Union

183

Financial Research Services*

184

First American Capital Group Corporation

185

First American Mortgage Trust

186

First California Mortgage Company

187

First Centennial Mortgage Corporation

188

First Choice Loan Services, Inc.

189

First Colony Mortgage Corporation

190

First Community Mortgage, Inc.

191

First Continental Mortgage, Ltd.

192

First Equity Mortgage, Inc.

Appendix III: Nonbank Servicers Identified

during Audit

Page 75 GAO-16-278 Nonbank Servicers

Nonbank Servicer as identified

Location

193

First Equity Mortgage Bankers, Inc.

194

First Equity Mortgage Company

195

First Guaranty Mortgage Corporation

196

First Guaranty Mortgage Corporation

197

First Heritage Mortgage, LLC

198

First Home Mortgage Corporation

199

First Housing Development Corporation

200

First Magnus Financial Corporation*

201

First Mortgage Corporation

202

First Mortgage Company, Inc.

203

First Mortgage Company, LLC

204

First National Mortgage Company

205

First Option Mortgage, LLC

206

First Residential Mortgage Corporation*

207

First Savings Mortgage Corporation

208

First World Mortgage Corporation

209

Firstcity Mortgage, Inc.*

210

Firstkey Mortgage, LLC

211

Fisher Financial Group dba Nations Choice Mortgage

212

Flat Branch Mortgage, Inc.

213

FM Home Loans LLC

214

Franklin American Mortgage Company

215

Franklin First Financial, Ltd, Inc.

216

Freedom Mortgage Corporation

217

Gateway Mortgage Corporation

218

Gateway Mortgage Group, LLC

219

Geo-Corp, Inc.

220

Georgetown Mortgage, LLC

221

Georgia Housing And Finance Authority DBA State Home Mortgage

222

Gershman Investment Corporation dba Gershman Mortgage

223

GFS Capital Holdings*

224

GMAC Mortgage LLC

225

Gmfs, LLC

226

GMH Mortgage Services, LLC

227

Golden Empire Mortgage, Inc.

228

Golden First Mortgage Corporation*

229

Golden Mortgage Bankers*

Appendix III: Nonbank Servicers Identified

during Audit

Page 76 GAO-16-278 Nonbank Servicers

Nonbank Servicer as identified

Location

230

Government And Judiciary Retirement

231

Graystone Solutions Inc.+*

232

Green Tree Servicing LLC

233

Greensboro Housing Finance Agency*

234

Greentree Mortgage Company, L.P.

235

Greystone Servicing Corporation, Inc.

236

GS Commercial Real Estate L.P.

237

GSF Mortgage Corporation

238

GTL Investments, Inc.

239

Guaranteed Rate, Inc.

240

Guaranty Loan & Real Estate Company

241

Guaranty Trust Company

242

GuardHill Financial Corporation

243

Guardian Mortgage Company, Inc.

244

Guidance Residential, LLC

245

Guild Mortgage Company

246

Hallmark Home Mortgage, LLC

247

Hamilton Mortgage Corporation*

248

Hamilton National Mortgage Company

249

Harbor Financial Mortgage Corporation*

250

Hartford Funding, Ltd.

251

Heartland Home Finance, Inc.*

252

Highlands Residential Mortgage

253

Hightechlending, Inc.

254

Holliday Fenoglio Fowler, L.P.

255

Home American Mortgage Corporation

256

Home Financing Center

257

Home Mortgage Inc.*

258

Home Point Financial Corporation

259

Home Point Financial Corporation

260

Home Savings Mortgage*

261

HomeAmerican Mortgage Corporation

262

HomeBridge Financial Services

263

Homeloan.com, Inc.*

264

HomeServices Lending, LLC dba Champion Realty Mortgage

265

Homestar Financial Corporation

266

Homestead Funding Corporation

Appendix III: Nonbank Servicers Identified

during Audit

Page 77 GAO-16-278 Nonbank Servicers

Nonbank Servicer as identified

Location

267

Homestead USA, Inc.*

268

Hometrust Mortgage Company

269

Homeward Residential, Inc.

270

Homewise, Inc.

271

Honolulu Homeloans, Inc.

272

Honor Credit Union

273

Hope Enterprise Corporation

274

Houstonian Mortgage Group, Inc.

275

Howard Hanna Financial Services, Inc. DBA Howard Hanna Mortgage

Services

276

Hunt Capital Partners, LLC*

277

Huron Valley Financial, Inc.

278

Idaho Housing And Finance Association

279

iFreedom Direct Corporation

280

Impac Funding Corporation*

281

Impac Mortgage Corporation

282

Independent Realty Capital Corporation*

283

Inlanta Mortgage, Inc.

284

Integrity Home Mortgage Corporation

285

Intercap Lending Inc.

286

Intercoastal Mortgage Company

287

Interlinc Mortgage Services, LLC

288

International City Mortgage

289

Iowa Bankers Mortgage Corporation

290

Irwin Mortgage Corporation*

291

iServe Residential Lending, LLC

292

James B. Nutter & Company

293

J.G. Wentworth Home Lending, Inc.

294

JMAC Lending Inc.

295

JMJ Financial Group

296

John Hancock Mutual Life Insurance Company, Inc.*

297

Jones Lang Lasalle Operations, LLC

298

K. Hovnanian American Mortgage LLC

299

Kemps Landing Capital, LLC*

300

Kentucky Housing Corporation

301

Key Mortgage Services, Inc.

302

Kodiak Island Housing Authority

Appendix III: Nonbank Servicers Identified

during Audit

Page 78 GAO-16-278 Nonbank Servicers

Nonbank Servicer as identified

Location

303

Kondaur Capital Corporation

304

Lake Mortgage Company, Inc.

305

Lakeview Loan Servicing, LLC

306

Land/Home Financial Services

307

Lasalle Mortgage Company LLC*

308

Leader Mortgage Company, Inc.

309

LeaderOne Financial Corporation

310

LeaderOne Financial Corporation

311

Lehman Brothers Holdings, Inc.*

312

LenderLive Network, Inc.

313

Lenox Financial Mortgage Corporation

314

LHM Financial Corporation

315

Liberty Mortgage Banking*

316

Liberty Mortgage Company Inc.

317

Live Well Financial, Inc.

318

Loan Link Financial Services*

319

Loan Simple, Inc.

320

Loancare LLC

321

loanDepot.com, LLC

322

Logan Finance Corporation

323

Lyons Mortgage Services, Inc.

324

M/I Financial, LLC

325

Mann Mortgage, LLC

326

Marix Servicing, LLC

327

Market Mortgage Company, Ltd.

328

Maryland Department of Housing & Community Development

329

Mason McDuffie Mortgage Corporation

330

Massachusetts Housing Finance Agency

331

Massachusetts Housing Partnership*

332

Matrix Financial Services Corporation

333

Matrix Financial Services Corporation

334

McCue Mortgage Company

335

McLean Mortgage Corporation

336

MCS Mortgage Bankers, Inc.

337

Megastar Financial Corporation

338

Melville Funding, LLC*

339

Member Advantage Mortgage, LLC

Appendix III: Nonbank Servicers Identified

during Audit

Page 79 GAO-16-278 Nonbank Servicers

Nonbank Servicer as identified

Location

340

Member First Mortgage, LLC

341

Member Home Loan, LLC

342

Members Mortgage Company, Inc.

343

Memorial Park Mortgage, Ltd.*

344

Meridian Residential Capital, LLC dba First Meridian Mortg

345

Meridias Capital, Inc.*

346

Merit Mortgage Services, Inc.+*

347

Merrimack Mortgage Company, Inc.

348

Metropolitan Home Mortgage, Inc.

349

Michigan Mutual, Inc.

350

Michigan State Housing Development Authority*

351

Mid America Mortgage, Inc.

352

Mid-Island Mortgage Corporation

353

Midland Mortgage Corporation

354

Midwest Loan Services, Inc.

355

Mila, Inc.*

356

MLD Mortgage, Inc.

357

MMS Mortgage Services, Ltd., DBA Member Mortgage Services, Ltd.

358

Morgan Stanley Mortgage Capital Holdings LLC

359

Moria Development Inc.

360

Mortgage 1, Inc.

361

Mortgage America, Inc.

362

Mortgage Capital Partners

363

Mortgage Center, L.C.

364

Mortgage Clearing Corporation

365

Mortgage Financial, Inc.

366

Mortgage I, Inc.

367

Mortgage Investors Corporation

368

Mortgage Investors Group

369

Mortgage Lenders network USA, Inc.*

370

Mortgage Lenders Of America

371

Mortgage Management Consultants

372

Mortgage Master, Inc.*

373

Mortgage Network, Inc.

374

Mortgage Research Center, LLC

375

Mortgage Solutions, LLC

376

Mortgage Solutions Of Colorado, LLC

Appendix III: Nonbank Servicers Identified

during Audit

Page 80 GAO-16-278 Nonbank Servicers

Nonbank Servicer as identified

Location

377

MortgageAmerica, Inc.*

378

Mount Olympus Mortgage Company

379

Mountain State Mortgage Centers, Inc.*

380

Mountain West Financial, Inc.

381

Movement Mortgage, LLC

382

MSR Trust

383

MVB Mortgage Corporation*

384

National Title Insurance Company*

385

Nations Direct Mortgage, LLC

386

Nations Lending Corporation

387

Nations Reliable Lending, LLC

388

Nationstar Mortgage LLC

389

Nationwide Advantage Mortgage Company

390

Natixis Real Estate Capital Inc.*

391

NE Moves Mortgage, LLC

392

Neighborhood Finance Corporation

393

Neighborhood Housing Services of America*

394

Neighborhood Housing Services Silicon Valley

395

Neighborhood Mortgage Solutions LLC

396

Network Capital Group, Inc.*

397

Network Funding, L.P.

398

Network Mortgage Services, Inc.

399

New Century Mortgage Corporation*

400

New Day Financial, LLC

401

New Hampshire Housing Finance Authority

402

New Jersey Housing And Mortgage Finance Agency

403

New Mexico Mortgage Finance Authority

404

New Penn Financial, LLC

405

New Penn Financial, LLC

406

Nfm, Inc.

407

NHS Neighborhood Lending Services*

408

Nickels & Smith Company

409

North Dakota Housing Finance Agency

410

Northern Ohio Investment Company

411

Northmarq Capital LLC

412

Norwich Commercial Group, Inc. DBA Norcom Mortgage

413

Nova Financial and Investment Corporation

Appendix III: Nonbank Servicers Identified

during Audit

Page 81 GAO-16-278 Nonbank Servicers

Nonbank Servicer as identified

Location

414

Novastar Home Mortgage, Inc.*

415

NTFN, Inc.

416

NVR Mortgage Finance, Inc.

417

NYCB Mortgage Company, LLC

418

Oak Grove Commercial Mortgage LLC

419

Oak Mortgage Company, LLC

420

Ocala Funding*

421

Ocala Servicing, LLC*

422

Oceanside Mortgage

423

Oceanside Mortgage Company

424

Ocwen Loan Servicing, LLC

425

Olympia Mortgage Corporation*

426

On Q Financial Inc.

427

Opes Advisors, Inc.

428

Orchid Island Trs, LLC*

429

Origen Servicing, Inc., dba Origen Home Loans

430

Owners Choice Funding, Inc.

431

P/R Mortgage & Investment Corporation

432

Pacific Commonwealth Mortgage Company

433

Pacific Crest Mortgage Corporation*

434

Pacific Residential Mortgage, LLC

435

Pacific Servicing, LLC

436

Pacific Union Financial, LLC

437

Pacific Union Financial, LLC

438

PAM MSR Trust 1, LLC*

439

Paramount Equity Mortgage, LLC

440

Paramount Residential Mortgage Group, Inc.

441

Parkside Lending, LLC

442

Peninsula Mortgage Bankers Corporation*

443

Pennsylvania Housing Finance Agency

444

PennyMac Corporation

445

PennyMac Loan Services, LLC

446

Perimeter Mortgage Funding Corporation*

447

Perl Mortgage, Inc.

448

PHH Home Loans LLC

449

PHH Mortgage Corporation

450

Pike Creek Mortgage Services, Inc.*

Appendix III: Nonbank Servicers Identified

during Audit

Page 82 GAO-16-278 Nonbank Servicers

Nonbank Servicer as identified

Location

451

Pillar Multifamily, LLC

452

Pingora Loan Servicing, LLC

453

Pingora Loan Servicing, LLC

454

Pinnacle Capital Mortgage Corporation

455

Planet Home Lending, LLC

456

Platinum Home Mortgage Corporation

457

Platinum Home Mortgage Corporation

458

Platinum Mortgage, Inc.

459

Plaza Home Mortgage, Inc.

460

Plymouth Exchange Mortgage Corporation*

461

PMAC Lending Services, Inc.

462

PMI Mortgage Insurance Company*

463

Poli Mortgage Group, Inc.

464

Primary Capital Mortgage, LLC

465

Primary Residential Mortgage, Inc.

466

Primelending, A Plainscapital Company

467

Princeton Mortgage Corporation

468

Prospect Mortgage, LLC

469

Prosperity Home Mortgage, LLC

470

Prosperity Home Mortgage Company, LLC

471

Provident Asset Management, L.P.*

472

Provident Funding Associates, L.P.

473

Prudential Affordable Mortgage Company

474

Prudential Huntoon Paige Associates, Limited

475

Pulte Mortgage LLC

476

Quantum Servicing Corporation

477

Quicken Loans Inc.

478

R P Funding, Inc.

479

Ranlife

480

Raymond James & Associates, Inc.*

481

RBS Financial Products Inc.

482

ReadyCap Commercial, LLC*

483

Realty Mortgage Corporation*

484

Red Mortgage Capital, LLC*

485

Red Stone Partners, LLC*

486

Redwood Residential Acquisition Corporation

487

Regency Mortgage Corporation

Appendix III: Nonbank Servicers Identified

during Audit

Page 83 GAO-16-278 Nonbank Servicers

Nonbank Servicer as identified

Location

488

Reliance First Capital, LLC

489

Residential Bancorp

490

Residential Credit Solutions, Inc.

491

Residential Home Funding Corporation

492

Residential Mortgage, LLC

493

Residential Mortgage Services, Inc.

494

ResMac, Inc.

495

Resurgent Capital Services, LP - Interim Servicing*

496

Reunion Mortgage Inc.*

497

Rhode Island Housing And Mortgage Finance Corporation

498

RICHMAC Funding LLC

499

Right Start Mortgage, Inc.

500

RMC Mortgage Corporation

501

RMR Financial dba Princeton Capital & First Capital

502

Rocky Mountain Mortgage Company

503

Rose Mortgage Corporation*

504

Roundpoint Mortgage Servicing Corporation

505

Royal Pacific Funding

506

Royal United Mortgage LLC

507

RP Funding, Inc.

508

RPM Mortgage, Inc.

509

RRAC SPV-FRE Trust*

510

Ruoff Mortgage Company, Inc A/K/A Ruoff Home Mortgage

511

Rushmore Loan Managment Services, LLC

512

Sabal Financial Group, LLC*

513

Sabal TL1, LLC*

514

Sacramento 1st Mortgage, Inc. dba Comstock Mortgage*

515

San Diego Funding

516

Sandler O'Neill Mortgage Finance, L.P.

517

Schaefer Mortgage Corporation*

518

SecurityNational Mortgage Company

519

Select Portfolio Servicing, Inc.

520

Selene Finance L.P.

521

Self-Help Ventures Fund

522

Seneca Mortgage Servicing, LLC

523

Sente Mortgage, Inc.

524

Servis One, Inc. dba BSI Financial Services, Inc.

Appendix III: Nonbank Servicers Identified

during Audit

Page 84 GAO-16-278 Nonbank Servicers

Nonbank Servicer as identified

Location

525

Seterus, Inc.*

526

Sfmc, L.P.

527

Shannon Funding, LLC

528

Shea Mortgage

529

Sibcy Cline Mortgage Services, Inc.

530

Sierra Pacific Home Loans, Inc.*

531

Sierra Pacific Mortgage

532

Sierra Pacific Mortgage Company, Inc.

533

Sirva Mortgage Inc.

534

Siwell, Inc. DBA Capital Mortgage Services Of Texas

535

Skyline Financial Corporation

536

SMFC

537

Solutions Funding, Inc. dba Airmortgage*

538

Sound Mortgage, Inc.+*

539

South Carolina State Housing Finance & Development Authority

540

South Pacific Financial Corporation

541

South Pacific Financial Corporation

542

Southeast Mortgage of GA Inc.

543

Southern Trust Mortgage, LLC

544

Southwest Stage Funding Llc DBA Cascade Financial Services

545

Specialized Loan Servicing LLC

546

Springs Mortgage Corporation*

547

St. James Mortgage Corporation

548

Standard Mortgage Corporation

549

Standard Pacific Mortgage, Inc.

550

Statebridge Company LLC*

551

Stearns Lending, LLC

552

Sterling Mortgage Group, LLC*

553

Stockton Mortgage Corporation

554

Stonegate Mortgage Corporation

555

Streeter Brothers Mortgage Corporation

556

Suburban Mortgage, Inc.

557

Summit Financial Center, Inc.*

558

Summit Funding, Inc.

559

Summit Mortgage Corporation

560

Sun American Mortgage Company

561

Sun West Mortgage Company, Inc.

Appendix III: Nonbank Servicers Identified

during Audit

Page 85 GAO-16-278 Nonbank Servicers

Nonbank Servicer as identified

Location

562

SunAmerica Investments Inc.*

563

Sunshine Mortgage Corporation+*

564

SWBC Mortgage Corporation

565

Syracuse Securities, Inc.

566

Taylor Bean & Whitaker+*

567

TBI Mortgage Company

568

Terwin Advisors, LLC dba The Winter Group*

569

Texas Department Of Housing And Community Affairs

570

Texas State Affordable Housing Corporation

571

TH Mortgage Opportunity Corporation

572

The Bankers Guarantee Title & Trust Company

573

The Community Preservation Corporation*

574

The Lending Partners, LLC

575

The Money House, Inc.

576

The Money Source, Inc.

577

The Mortgage House, Inc.

578

The Northern Ohio Investment Company

579

The Wisconsin Housing & Economic Development Authority*

580

Tidewater Home Funding, LLC

581

Tidewater Mortgage Services, Inc.

582

T.J. Financial, Inc.

583

Total Mortgage Services, LLC

584

Towd Point Loan Servicing, LLC

585

Towne Mortgage & Realty Company

586

Towne Mortgage Company

587

Transland Financial Services*

588

Transnational Financial Network*

589

Trident Mortgage Company

590

Troxler & Associates, Inc.*

591

Truhome Solutions, LLC

592

Tuttle & Company*

593

Union Home Mortgage Corporation

594

United Federal Savings*

595

United Fidelity Funding, Corporation

596

United Financial Mortgage Corporation DBA Mortgage Service A*

597

United General Mortgage Corporation*

598

United Mortgage Corporation

Appendix III: Nonbank Servicers Identified

during Audit

Page 86 GAO-16-278 Nonbank Servicers

Nonbank Servicer as identified

Location

599

United Security Financial, Corporation

600

United Shore Financial Services, LLC., dba Shore Mortgage

601

Universal American Mortgage Company, LLC

602

Universal Lending Corporation

603

US Mortgage Corporation

604

Utah Housing Corporation

605

Vanderbilt Mortgage & Finance

606

Vandyk Mortgage Corporation

607

Vanguard Funding LLC

608

Venta Financial Group, Inc.*

609

Veritas Funding LLC

610

Vermont Housing Finance Agency*

611

Village Capital & Investment,

612

Village Mortgage Company

613

V.I.P. Mortgage, Inc.

614

Virginia Housing Development Authority

615

Vitek Real Estate Industries Group, Inc.

616

W. J. Bradley Mortgage Capital Corporation

617

Walker & Dunlop, LLC*

618

Walker Jackson Mortgage Corporation*

619

Wall Street Mortgage Bankers Ltd DBA Power Express

620

Wallick And Volk, Inc.

621

Ward Cook, Inc.*

622

Washtenaw Mortgage Company*

623

Waterstone Mortgage Corporation

624

Watson Mortgage Corporation

625

WEI Mortgage Corporation

626

Mortgage Access Corp. DBA Weichert Financial Services

627

Wendover Financial Services

628

Wendover Financial Services Corporation

629

West Virginia Housing Development Fund

630

Western States Mortgage Corp. dba Residential Capital Corporation*

631

Weststar Mortgage, Inc.

632

Weststar Mortgage Corporation

633

WestStar Mortgage, Inc.

634

William Raveis Mortgage, LLC

635

Wisconsin Housing & Economic Development Authority

Appendix III: Nonbank Servicers Identified

during Audit

Page 87 GAO-16-278 Nonbank Servicers

Nonbank Servicer as identified

Location

636

Wisconsin Mortgage Company

637

Witmer Funding, LLC*

638

W.J. Bradley Mortgage Capital, LLC

639

WR Starkey Mortgage, LLP

640

Wyndham Capital Mortgage

641

Wyoming Community Development Authority

Source: GAO analysis of Ginnie Mae, Freddie Mac and Fannie Mae servicer portfolios.

Note: Data reflects lists of nonbank servicers received from Ginnie Mae and Fannie Mae based on

our definition of “nonbank servicer” and our methodology for eliminating banks from Freddie Mac’s

servicing portfolio. To generate this list, we defined an entity as a bank servicer if it is a bank; is

owned by a bank; or its owner also owns a bank. Our process for eliminating banks principally relied

on unique regulatory IDs to eliminate banks from Freddie Mac’s list of servicers and is subject to

error.

*Institutions for which no federal ID was included. For these entities, we relied on the entities’ name to

identify and eliminate banks. This approach introduced additional error in our process and some bank

servicers may remain. Companies with no information in location column reflect servicers for which

that information was not provided in the source data.

Appendix IV: Comments from the Consumer

Financial Protection Bureau

Page 88 GAO-16-278 Nonbank Servicers

Appendix IV: Comments from the Consumer

Financial Protection Bureau

Appendix IV: Comments from the Consumer

Financial Protection Bureau

Page 89 GAO-16-278 Nonbank Servicers

Appendix IV: Comments from the Consumer

Financial Protection Bureau

Page 90 GAO-16-278 Nonbank Servicers

Appendix V: Comments from the Conference

of State Bank Supervisors

Page 91 GAO-16-278 Nonbank Servicers

Appendix V: Comments from the Conference

of State Bank Supervisors

Appendix V: Comments from the Conference

of State Bank Supervisors

Page 92 GAO-16-278 Nonbank Servicers

Appendix V: Comments from the Conference

of State Bank Supervisors

Page 93 GAO-16-278 Nonbank Servicers

Appendix VI: Comments from the Federal

Housing Finance Agency

Page 94 GAO-16-278 Nonbank Servicers

Appendix VI: Comments from the Federal

Housing Finance Agency

Appendix VII: Comments from Ginnie Mae

Page 95 GAO-16-278 Nonbank Servicers

Appendix VII: Comments from Ginnie Mae

Appendix VIII: GAO Contacts and

Acknowledgements

Page 96 GAO-16-278 Nonbank Servicers

Lawrance L. Evans, Jr. (202) 512-8678, evansl@gao.gov

In addition to the contact named above, Karen Tremba (Assistant

Director), Erica Miles (Analyst-in-Charge), Bethany Benitez, Steven

Campbell, Pamela Davidson, John Karikari, Courtney LaFountain, Robert

Letzler, Daniel Powers, Jennifer Schwartz, Jena Sinkfield and James

Vitarello made key contributions to this report

Appendix VIII: GAO Contacts and

Acknowledgements

GAO Contacts

Staff

Acknowledgements

(100066)

The Government Accountability Office, the audit, evaluation, and

investigative arm of Congress, exists to support Congress in meeting its

constitutional responsibilities and to help improve the performance and

accountability of the federal government for the American people. GAO

examines the use of public funds; evaluates federal programs and

policies; and provides analyses, recommendations, and other assistance

to help Congress make informed oversight, policy, and funding decisions.

GAO’s commitment to good government is reflected in its core values of

accountability, integrity, and reliability.

The fastest and easiest way to obtain copies of GAO documents at no

cost is through GAO’s website (http://www.gao.gov). Each weekday

afternoon, GAO posts on its website newly released reports, testimony,

and correspondence. To have GAO e-mail you a list of newly posted

products, go to http://www.gao.gov and select “E-mail Updates.”

The price of each GAO publication reflects GAO’s actual cost of

production and distribution and depends on the number of pages in the

publication and whether the publication is printed in color or black and

white. Pricing and ordering information is posted on GAO’s website,

http://www.gao.gov/ordering.htm.

Place orders by calling (202) 512-6000, toll free (866) 801-7077, or

TDD (202) 512-2537.

Orders may be paid for using American Express, Discover Card,

MasterCard, Visa, check, or money order. Call for additional information.

Connect with GAO on Facebook, Flickr, Twitter, and YouTube.

Subscribe to our RSS Feeds or E-mail Updates.

Listen to our Podcasts and read The Watchblog.

Visit GAO on the web at www.gao.gov.

Contact:

Website: http://www.gao.gov/fraudnet/fraudnet.htm

E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470

Katherine Siggerud, Managing Director, [email protected], (202) 512-

4400, U.S. Government Accountability Office, 441 G Street NW, Room

7125, Washington, DC 20548

Chuck Young, Managing Director, youngc1@gao.gov, (202) 512-4800

U.S. Government Accountability Office, 441 G Street NW, Room 7149

Washington, DC 20548

GAO’s Mission

Obtaining Copies of

GAO Reports and

Testimony

Order by Phone

Connect with GAO

To Report Fraud,

Waste, and Abuse in

Federal Programs

Congressional

Relations

Public Affairs

Please Print on Recycled Paper.