What Happened?
On February 10th, the U.S. Government Accountability Office (the GAO) published a report on nonbank mortgage servicers’ financial risk due to their growing role in the U.S. housing finance system, titled “Nonbank Mortgage Companies: Ginnie Mae and FHFA Could Enhance Financial Monitoring” (the GAO Report). The GAO Report draws from the GAO’s prior work and from the Financial Stability Oversight Council’s 2024 Report on Nonbank Mortgage Servicing, which we discussed in a prior blog.
The GAO Report addresses (i) the growing role of nonbanks in the mortgage market since 2024, and (ii) Ginnie Mae’s and FHFA’s processes for assessing the financial condition of nonbank mortgage companies. The report includes several recommendations. Both Ginnie Mae and the FHFA agreed with these recommendations and signaled that changes may be coming later this fall.
Why Does it Matter?
For over a decade, the Conference of State Bank Supervisors and federal regulators have sought to impose financial condition requirements on nonbank servicers. Over time, regulators have issued multiple recommendations and have imposed enhanced capital and liquidity requirements on these entities. The GAO Report builds on that prior work and provides concrete recommendations to Ginnie Mae and the FHFA—the regulator for Fannie Mae and Freddie Mac (the GSEs).
Once implemented, the revised requirements will flow down to the nonbanks that service GSE and agency (e.g., HUD/FHA, VA, USDA) loans.
According to the GAO Report, “[f]inancial monitoring of nonbanks has become increasingly important because of nonbanks’ expanding market role and financial vulnerabilities.” Nonbanks now service the majority of federally backed mortgages, which secure more than $9 trillion in securities backed by Ginnie Mae, Fannie Mae and Freddie Mac—a market share that has increased from 27% in 2014 to 66% in 2024. The share of nonbank originations has also grown extensively in the past decade—from 51% in 2014 to 76% in 2024.
The GAO Report recognizes the benefits nonbanks provide to markets and consumers, including increased liquidity, adoption of new technology, and playing a large role in serving the needs of underserved borrowers. However, consistent with other reports, the GAO Report concludes that the federal monitoring framework does not fully capture the liquidity and funding risk due in part to (i) the lack of a federal prudential regulator, (ii) fragmented oversight that increases the likelihood that weaknesses go undetected, (iii) nonbanks’ reliance on short-term warehouse credit that may become unavailable during economic downturns, and (iv) the potential for substantial government exposure.
Key Recommendations
Given these vulnerabilities, the GAO Report identifies specific opportunities for FHFA and Ginnie Mae to improve how they assess nonbanks’ financial condition. The recommendations focus primarily on data reliability, warehouse lending risk, which is viewed as a key liquidity risk, and consideration of nonbank stress scenarios. Specifically:
Improve Reliability of MBFRF Data
FHFA and Ginnie Mae rely on the data reported by mortgage servicers on the Mortgage Bankers Financial Reporting Form (MBFRF) to monitor the financial condition of nonbanks. Both agencies have identified reliability issues in the data reported on the MBFRF. While Ginnie Mae has already implemented certain controls, the GAO Report recommends that FHFA develop procedures to improve the quality and reliability of MBFRF data.
Improve Qualitative Assessment of Nonbanks to Fully Address Warehouse Lending Risks and Stress Test Scenarios
The GAO Report identifies five key components of warehouse lending risk:
- Diversification: Number of warehouse lines available to a nonbank;
- Utilization: Portion of available credit in use;
- Maturity: Credit line maturity dates;
- Covenant violations: Financial or collateral breaches that could lead to termination of the credit line; and
- Committed amount: Extent of committed versus uncommitted capacity (i.e., a lender may be able to reprice an uncommitted amount at any time whereas a committed line can be altered in limited circumstances).
Neither FHFA’s nor Ginnie Mae’s monitoring currently captures all five components. The GAO Report recommends that FHFA assess the “feasibility and utility” of including all five components in its risk scoring process. For Ginnie Mae, the GAO Report recommends developing guidance that requires analysts to consistently review warehouse lending risks—particularly committed funding amounts—as part of its manual credit review process.
Expand Stress Testing Framework to Consider Alternative Economic Framework
In monitoring counterparty risk, Ginnie Mae currently conducts stress tests, but those tests only simulate a protracted recession. The GAO Report recommends that Ginnie Mae expand its stress testing framework to address other economic stress scenarios, such as stagflation—a type of recession where delinquencies rise and interest rates remain high (which means lower originations).
What Do You Need to Do?
Regulators continue to focus on the potential vulnerabilities of nonbank mortgage lenders and servicers—a priority that has persisted across both Democratic and Republican administrations, signaling that these issues will remain an area of focus. Both FHFA and Ginnie Mae have accepted the GAO’s recommendations, and changes are expected later this year. As a result, now is a good time to conduct additional stress testing using a broader range of economic stress scenarios. Additionally, FHFA indicated that, by September 30, 2026, its Division of Enterprise Regulation (DER) will develop procedures for assessing the reliability of MBRFR data and handling potentially unreliable data. Accordingly, nonbanks should ensure they have appropriate controls in place to support accurate MBFRF reporting.
