Mortgage companies could intensify the next recession, US officials warn
CNN
US officials worry the next recession could be intensified by a cascading series of failures in the mortgage industry caused by crashing home prices, frozen financial markets and soaring delinquencies.
US officials worry the next recession could be intensified by a cascading series of failures in the mortgage industry caused by crashing home prices, frozen financial markets and soaring delinquencies. The US Financial Stability Oversight Council, a SWAT team of financial regulators formed after the 2008 crisis, sounded the alarm on Friday about an increasingly influential corner of the industry that has largely escaped scrutiny: nonbank mortgage companies. Unlike traditional banks, nonbank mortgage companies like Rocket Mortgage are heavily exposed to swings in the mortgage market, depend on funding that can dry up during times of stress and don’t have stable deposits to rely on as a safety net. And, unlike banks, these companies are lightly regulated at the national level. FSOC warned that these unique vulnerabilities risk a domino effect in a future crisis where multiple mortgage companies fail, borrowers are locked out of the mortgage market and the federal government is left holding the bag. “Put simply, the vulnerabilities of nonbank mortgage companies can amplify shocks in the mortgage market and undermine financial stability,” Treasury Secretary Janet Yellen, who chairs FSOC, said in the report. Federal regulators are calling for states and Congress to take action to address the risks posed here, including creating an industry-funded backstop to ease turmoil caused when a mortgage company goes under.
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