From the Desk of the Om-Bobs-man

From the Desk of the ‘Om-Bobs-man’ "Om-Bobs-Man" is the nickname Bob Niemi earned while serving as the NMLS Ombudsman in 2014 and 2015. Bob is a former Ohio state regulator and now an expert consultant on NMLS and state regulatory matters. Bob can be reached at BNiemi@Bradley.com.

You’ve Got to Fight for Your Regulator

We need to fight for state regulators and the supervisory role they fulfill every day because a federal regulatory panel has increased oversight of mortgage companies. According to Financial Stability Oversight Council, in their 2019 annual report, nonbank mortgage companies pose significant risk to the U.S. economy and oversight of nonbank lenders much be strengthened.

The Financial Stability Oversight Council, commonly referred to as FSOC, was created by the Dodd-Frank Act with statutory authority to identify risks and respond to emerging threats to the nation’s financial stability. FSOC is chaired by the Secretary of the Treasury with an extensive list of federal regulators. Only one state banking regulator, one state insurance regulator, and one state securities regulator are included, each in non-voting roles. This council seemed unaware of the growth of nonbank mortgage companies and increased share of the national mortgage origination and servicing since the financial crisis and regulatory reforms incorporated in years following.

In a September meeting, three invited guests presented to the council on business mortgage models, growth of nonbank mortgage lenders, and reluctance of banks to originate higher loans to value or riskier mortgages. The presentations took a turn to focus on the perceived ‘fragilities’ of nonbank mortgage companies and their reliance on short term funding and fewer resources to absorb the shocks during periods of economic stress. The minutes of the meeting then describe how the “regulatory framework for these nonbanks is fragmented among federal and state regulators.”

Robert Broeksmit, president and CEO of the Mortgage Bankers Association (MBA) responded in a statement, “We appreciate that the FSOC report recognizes these important facts, and we believe it calls for policies that strengthen the sector and deepen overall market liquidity, not simply force market share away from IMBs” His comment refers to the 900 or so larger independent mortgage bankers recognized by FSOC.

Luckily, FSOC adopted a rule stating the council shall not amend or rescind its interpretive guidance on nonbank financial company determinations without providing public notice and provide an opportunity to comment. This is good news but also a challenge as any call for increased oversight beyond harmonized supervision within the existing network of state and federal regulators must be answered. That answer will certainly come from the MBA and the majority of IMBs. But our response will also be needed as any impact of increased oversight will be felt by all companies and, in turn, licensed mortgage originators.

For the record, nonbank mortgage lenders have been financing the American Dream for nearly 140 years. A recent MBA report on IMBs describes how IMBs rise in times of need and fill gaps when bank lenders retreat or realign business focus to meet return requirements for stockholders. Further, IMBs have traditionally been the leading resource for first-time homebuyers, FHA, and VA lending.

One last fact that needs to be understood by FSOC and all: Nonbank mortgage companies are subject to the same consumer protection regulations and oversight from state and federal agencies as other mortgage lenders, maybe more. MBM

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