A new FDIC report on nonbank mortgage activity adds to the heap of opprobrium at FHFA, FHA, Treasury, Ginnie Mae, and GAO. However, the paper’s market analysis suggests that, no matter the MSA relief just granted to all but the biggest banks, the U.S. mortgage market will be increasingly dominated by nonbanks unless or until nascent state-level prudential standards are in place or – more likely – bank regulators become so alarmed by nonbank risk that they institute the new liquidity-facility safeguards suggested by the FDIC’s conclusion. If these come in concert with market stress, the FDIC and likely FSOC fear sudden market contraction and resulting systemic risk. To cushion the blow, bank regulators and FHFA could institute near-term restrictions on bank exposures to nonbank mortgage companies.
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