Although we have some methodological quibbles with a new study on the role of “shadow banks” and fintech in the U.S. mortgage market, its quantitative findings are stunning confirmation that non-banks are taking over FHA, stepping in as traditional banks pull out due to compliance costs, capital constraints on servicing rights, and what many see as crushing legal and reputational risk. During the Obama Administration, Ginnie Mae became increasingly fearful that non-bank servicers would lack the capital capacity and stick-to-it-tiveness to handle Ginnie claims, leaving taxpayers to pick up an increasingly costly bag. Non-banks play less of a role in GSE originations and servicing according to this study, but their share is still formidable and the resilience is thus also a concern on the agency front. Indeed, it may be a more compelling one given the GSEs’ shrinking capital coffers.
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