MORTGAGE 

SERVICING 

Community Lenders 

Remain Active under 

New Rules, but CFPB 

Needs More 

Complete Plans for 

Reviewing Rules 

Report to the Chairman, Committee on 

Financial Services, House of 

Representatives

June 2016

GAO-16-448

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-16-448, a report to the 

Chairman, Committee on Financial Services, 

House of Representatives

June 2016

MORTGAGE SERVICING

Community Lenders Remain Active under New Rules, 

but CFPB Needs More Complete Plans for Reviewing 

Rules

Why GAO Did This Study

As of September 30, 2015, community 

lenders held about $3.1 billion in MSRs 

on their balance sheets. Servicing is a 

part of holding all mortgage loans, but 

an MSR generally becomes a distinct 

asset when the loan is sold or 

securitized. In response to the 2007–

2009 financial crisis, regulators have 

implemented new rules related to 

mortgage servicing and regulatory 

capital to protect consumers and 

strengthen the financial services 

industry. GAO was asked to review the

effect of these rule changes on U.S. 

banks and credit unions, particularly

community lenders. This report

examines (1) community lenders’ 

participation in the mortgage servicing 

market and potential effects of CFPB’s 

mortgage servicing rules on them, (2) 

potential effects of the treatment of 

MSRs in capital rules on community 

lenders’ decisions about holding or 

selling MSRs, and (3) the process 

regulators used to consider impacts of 

these new rules on mortgage servicing 

and the capital treatment of MSRs.

GAO analyzed financial data, reviewed 

relevant laws and documents from 

regulatory agencies, and interviewed 

16 community lenders selected based 

on size and volume of mortgage 

servicing activities, as well as industry,

consumer groups, and federal officials.

What GAO Recommends

CFPB should complete a plan to 

measure the effects of its new

regulations that includes specific 

metrics, baselines, and analytical 

methods to be used. CFPB agreed to 

take steps to complete its plan for 

conducting a retrospective review of 

the mortgage servicing rules and refine 

the review’s scope and focus.

What GAO Found

Community banks and credit unions (community lenders) remained active in 

servicing mortgage loans under the Consumer Financial Protection Bureau’s

(CFPB) new mortgage-servicing rules. Among other things, these rules are 

intended to provide more information to consumers about their loan obligations. 

The share of mortgages serviced by community lenders in 2015—about 13 

percent—remained small compared to larger lenders, although their share 

doubled between 2008 and 2015. Large banks continue to service more than half 

of residential mortgages. Many lenders GAO interviewed said changes in 

mortgage-related requirements resulted in increased costs, such as hiring staff 

and updating systems. However, many also stated that servicing mortgages 

remained important to them for the revenue it can generate and their customerfocused business model.

Banking and credit union regulators’ new capital rules changed how mortgage

servicing rights (MSR) are treated in calculations of required capital amounts, but 

GAO found that these new rules appear unlikely to affect most community 

lenders’ decisions to retain or sell MSRs. For example, GAO found that in the 

third quarter of 2015, about 1 percent of community banks had to limit the 

amount of MSRs that counted in their capital calculations due to the amount of 

these assets they held. This may result in some institutions choosing to raise 

additional capital or sell MSRs to meet required minimum capital amounts, 

depending on banks’ holdings of other types of assets. A few banks with large 

concentrations of MSRs that GAO spoke with said they were considering selling 

MSRs or other changes to their capital but market participants told us that the 

MSR capital treatment was only one of several factors influencing their decisions.

Separate capital rules for credit unions also are unlikely to affect most credit 

unions. For example, credit unions told GAO they did not expect to make 

changes to their MSR holdings and one credit union explained that it is because 

MSRs represented a small percentage of their overall capital. 

Banking regulators and CFPB estimated the potential impacts of their new rules 

prior to issuing them by, for example, estimating potential costs of compliance.

Banking regulators included the capital rules in a retrospective review of all their 

rules required by statute, although this review is to be completed before the MSR 

requirements are fully implemented by the end of 2018. Banking regulators also 

said they often conduct other informal reviews as needed to evaluate their rules’ 

effectiveness. CFPB also has a statutory retrospective review requirement, but 

its plans for retrospectively reviewing its mortgage-servicing rules are incomplete.

CFPB has not yet finalized a retrospective review plan or identified specific 

metrics, baselines, and analytical methods, as encouraged in Office of 

Management and Budget guidance. In addition, GAO found that agencies are 

better prepared to perform effective reviews if they identify potential data sources 

and the measures needed to assess rules’ effectiveness. CFPB officials said it 

was too soon to identify relevant data and that they wanted flexibility to design an 

effective methodology. However, without a completed plan, CFPB risks not 

having time to perform an effective review before January 2019—the date by 

which CFPB must publish a report of its assessment.

View GAO-16-448. For more information, 

contact Mathew J. Sciré at (202) 512-8678 or 

sciremj@gao.gov.
Page i GAO-16-448 Mortgage Servicing

Letter 1

Background 4

Community Lenders Continue to Service Mortgages as Regulatory 

Requirements Increase 14

New Capital Treatment of Mortgage Servicing Rights Likely Will 

Not Affect Many Community Banks and Credit Unions 24

Regulators Estimated Impacts of New Rules Using Public Input 

and Data Analysis, but CFPB’s Plans for Reviewing Rules Have 

Limitations 33

Conclusions 44

Recommendation for Executive Action 44

Agency Comments and Our Evaluation 44

Appendix I Objectives, Scope, and Methodology 47

Appendix II Mortgage Servicing Rights Transfer Activity 56

Appendix III Comments from the Bureau of Consumer Financial Protection 58

Appendix IV Comments from the National Credit Union Administration 61

Appendix V GAO Contact and Staff Acknowledgments 62

Tables

Table 1: Federal Prudential Regulators and Their Basic Prudential 

Functions, as of June 2016 6

Table 2: Median Risk-Based Capital Ratios for Community Banks 

by Size and Required Minimum Capital Ratios, Third 

Quarter 2015 28

Table 3: Number of Community Banks and Credit Unions 

Interviewed, by Size 54

Contents
Page ii GAO-16-448 Mortgage Servicing

Table 4: Percentage of Residential Mortgage Transfers of 

Servicing Approved by Freddie Mac or Ginnie Mae by 

Institution Type, 2010 through 2015 56

Table 5: Net Transfers of Mortgage Servicing Rights Approved by 

Freddie Mac or Ginnie Mae by Institution Type and Size

(in billions of dollars of unpaid principal balance), 2010 

through 2015 57

Figures

Figure 1: Mortgage Servicing and Creation of a Mortgage 

Servicing Right 8

Figure 2: Estimated Share of Residential Mortgages Serviced by 

Community Banks, Credit Unions, and Nationwide, 

Regional, and Other Banks, First Quarter 2008 through 

Third Quarter 2015 (percentage) 14

Figure 3: Percentage of Community Banks, Credit Unions, and 

Nationwide, Regional, and Other Banks with Residential 

Mortgages on their Balance Sheets by Size, First Quarter

2001 through Third Quarter 2015 (percentage) 22

Figure 4: Mortgage Servicing Rights and Risk-Based Capital 

Ratios 25

Figure 5: Community Banks’ Capital Treatment of Mortgage 

Servicing Rights, 2015Q3 26

Figure 6: Sample Public Comments from the “Regulation Room” 

on CFPB’s Proposed Mortgage Servicing Rule 35
Page iii GAO-16-448 Mortgage Servicing 

Abbreviations 

ABA American Bankers Association 

CET1 common equity tier 1 

CFPB Consumer Financial Protection Bureau 

CUNA Credit Union National Association 

Dodd-Frank Act Dodd-Frank Wall Street Reform and Consumer 

Protection Act 

EGRPRA Economic Growth and Regulatory Paperwork 

Reduction Act of 1996 

FDIC Federal Deposit Insurance Corporation 

Federal Reserve Board of Governors of the Federal Reserve System 

FFIEC Federal Financial Institutions Examination Council 

MBS mortgage-backed securities 

MSR mortgage servicing rights 

NCUA National Credit Union Administration 

OMB Office of Management and Budget 

PRA Paperwork Reduction Act of 1995 

RFA Regulatory Flexibility Act 

SBREFA Small Business Regulatory Enforcement Fairness 

Act of 1996 

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. The published product may be reproduced and distributed in its entirety 

without further permission from GAO. However, because this work may contain 

copyrighted images or other material, permission from the copyright holder may be 

necessary if you wish to reproduce this material separately. 
Page 1 GAO-16-448 Mortgage Servicing

441 G St. N.W.

Washington, DC 20548

June 23, 2016

The Honorable Jeb Hensarling

Chairman

Committee on Financial Services

House of Representatives

Dear Mr. Chairman:

Many community banks and credit unions (community lenders) view 

servicing mortgages as important to maintaining their business and 

satisfying their customers. As of September 30, 2015, community lenders 

held about $3.1 billion in mortgage servicing rights on their balance 

sheets.1 Recently, these relatively small financial institutions as well as 

larger banks have become subject to regulatory changes developed in 

response to the 2007‒2009 financial crisis. 

These changes are designed, in part, to strengthen the financial services 

industry, and some are specific to mortgage servicing. The 2010 DoddFrank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) 

directed or gave authority to federal agencies to issue mortgage servicing

regulations. In 2013, the Bureau of Consumer Financial Protection 

(commonly known as the Consumer Financial Protection Bureau or 

CFPB) issued regulations that require, among other things, prompt 

crediting of mortgage payment and early intervention for delinquent 

borrowers.2 Further, also in 2013, federal banking regulators adopted new 

requirements for risk-based capital that are based on international 

standards (the Basel III framework) developed by the Basel Committee 

on Banking Supervision, a global standard-setter for prudential bank 

 1

Although no commonly accepted definition of a community bank exists, the term often is 

associated with smaller banks (e.g., under $1 billion in assets) that provide relationship 

banking services to the local community and have management and board members who 

reside in the local community. In this report, we use the term “community lenders” to mean 

community banks and credit unions. Credit union membership is based on a common 

bond, such as residing in a specific geographic area or working in the same profession. 

2

Mortgage Servicing Rules Under the Real Estate Settlement Procedures Act (Regulation 

X), 78 Fed. Reg. 10696 (Feb. 14, 2013); Mortgage Servicing Rules Under the Truth in 

Lending Act (Regulation Z), 78 Fed. Reg. 10902 (Feb. 14, 2013).

Letter
Page 2 GAO-16-448 Mortgage Servicing

regulation.

3 These requirements define how much capital banks must 

hold for a variety of activities—including for holding mortgage servicing 

rights (MSR), which are distinct assets that generally are created when a 

mortgage loan is sold or securitized.4

Both the mortgage servicing regulations and the regulatory capital 

changes for MSRs are relatively new and the effect of these new 

requirements has not yet been formally evaluated. Industry and trade 

associations have raised concerns about the potential effect of mortgage 

servicing regulations on U.S. banks and, in particular, on community 

lenders. You asked us to examine the effect of mortgage servicing and 

risk-based capital regulations on community lenders and their 

customers.5 This report examines (1) community lenders’ participation in 

the mortgage servicing market and potential effects of CFPB’s mortgage 

 3

Regulatory Capital Rules: Regulatory Capital, Implementation of Basel III, Capital 

Adequacy, Transition Provisions, Prompt Corrective Action, Standardized Approach for 

Risk-weighted Assets, Market Discipline and Disclosure Requirements, Advanced 

Approaches Risk-Based Capital Rule, and Market Risk Capital Rule, 78 Fed. Reg. 62018 

(Oct. 11, 2013) (Federal Reserve and OCC) and 78 Fed. Reg. 55340 (Sept. 10, 2013) 

(FDIC Interim Final Rule). With minor changes, the September 2013 FDIC interim final 

rule became a final rule in April 2014. See 79 Fed. Reg. 20754 (Apr. 14, 2014). The Basel 

III framework has no legal force but was issued by the agreement of the Basel Committee 

members with the expectation that individual national authorities would implement the 

standards.

4

In this report, we use the term “mortgage servicing rights” to mean mortgage servicing 

assets that are recognized on a servicer’s balance sheet and are subject to capital 

deductions and risk-weighting under the federal prudential regulators’ risk-based capital 

rules. Depending upon the facts and circumstances of a given loan sale or securitization 

transaction, mortgage servicing rights may or may not actually be recognized on a 

servicer’s balance sheet, and when recognized, could actually constitute either a 

mortgage servicing asset or a mortgage servicing liability. Also, under U.S. Generally 

Accepted Accounting Principles, certain accounting criteria must be met for the sale to 

qualify as an accounting sale of servicing assets. For example, the transferor must 

surrender control of the financial assets to the transferee.

5

We use the Federal Deposit Insurance Corporation’s practical definition of a community 

bank, which incorporates an asset size threshold—generally including banks with less 

than $1 billion in assets—and other characteristics, including if it is part of a banking 

organization that has loans or core deposits, has limited amounts of foreign assets, has 

limited amounts of assets in specialty banks like credit card banks or trust companies, and 

is either relatively small or has large amounts of loans and core deposits and a limited 

geographic scope. The asset size threshold is not a strict requirement. Larger banks may 

be considered community banks if they meet other criteria such as having a loan-to-asset 

ratio greater than 33 percent. See Federal Deposit Insurance Corporation, FDIC 

Community Banking Study, December 2012.
Page 3 GAO-16-448 Mortgage Servicing

servicing rules on them, (2) potential effects of the risk-based capital 

treatment of MSRs on decisions about holding or selling MSRs, and (3) 

the process regulators used to estimate the impact of regulations 

addressing mortgage servicing requirements and the risk-based capital 

treatment of MSRs.

To address these objectives, we analyzed quarterly data on banks 

obtained from the Federal Deposit Insurance Corporation (FDIC) and the 

Federal Financial Institutions Examination Council (FFIEC) for the period 

from the first quarter of 2001 through the third quarter of 2015, quarterly 

data on credit unions obtained from the National Credit Union 

Administration (NCUA) for the period from the second quarter of 2002 

through the third quarter of 2015, and quarterly data on outstanding 

residential mortgages obtained from the Board of Governors of the 

Federal Reserve System (Federal Reserve) for the period from the first 

quarter of 2008 through the third quarter of 2015. We used these data to 

estimate the shares of residential mortgages serviced by banks and credit 

unions of different sizes, to assess the extent to which banks and credit 

unions participate in residential mortgage lending, and to analyze the 

potential effect on banks of the capital treatment of MSRs under riskbased capital rules. We grouped banks into five equal-sized groups, or 

quintiles, based on their size as measured by total assets, with the first 

quintile containing the smallest banks and the fifth quintile containing the 

largest banks. We did the same for credit unions. We assessed the 

reliability of the data from FDIC, FFIEC, the Federal Reserve, and NCUA 

for the purposes described above by reviewing relevant documentation 

and electronically testing the data for missing values, outliers, and invalid 

values and found the data to be sufficiently reliable for these purposes.

We also analyzed data on transfers of mortgage servicing rights obtained 

from Fannie Mae, Freddie Mac, and Ginnie Mae for the period from 2010 

to 2015. We analyzed the amount of MSRs associated with mortgage 

pools that were sold via bulk sales by banks, credit unions, and nonbank 

entities. We assessed the reliability of these data for this purpose by 

electronically testing the variables for missing values, invalid values, and 

outliers. We found these data to be sufficiently reliable for this purpose. 

Finally, we reviewed relevant laws and regulations, as well as past GAO 

reports on the financial crisis and the implementation of the Dodd-Frank

Act. We also interviewed officials from a variety of organizations, 

including community banks, credit unions, regulators, industry 

organizations, credit union service organizations, consumer groups, and 

academics and other industry participants such as mortgage brokers. Our 
Page 4 GAO-16-448 Mortgage Servicing

interviews with a small sample of community lenders and an additional 

regional bank provided further insights on their participation in mortgage 

servicing and effects of regulations. The responses are not generalizable 

to the population of community lenders. Appendix I provides a more 

detailed description of our scope and methodology.

We conducted this performance audit from April 2015 to June 2016 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

Various institutions, including banks, credit unions, nonbank entities, and 

subservicers, service mortgage loans.6 These institutions are defined as 

follows:

• Banks. Institutions of various types that may be chartered under 

federal or state law.

7 One type of bank, community banks, is often 

associated with smaller banks (e.g., under $1 billion in assets) that 

provide relationship banking services to the local community and have 

 6

For more information about nonbank mortgage servicers, see GAO, Nonbank Mortgage 

Servicers: Existing Regulatory Oversight Could Be Strengthened, GAO-16-278 

(Washington D.C.: Mar. 10, 2016).

7

For purposes of this report, banks include bank holding companies, financial holding 

companies, savings and loan holding companies, and insured depository institutions, 

including any subsidiaries or affiliates of these institutions. 

Background

Types of Mortgage 

Servicers and Federal 

Regulators
Page 5 GAO-16-448 Mortgage Servicing

management and board members who reside in the local community.8

In addition to mortgage servicing, banks offer a variety of financial 

products to consumers, including deposit products, loan products,

such as mortgage and auto loans, and credit card products.

• Credit unions. Member-owned cooperatives run by member-elected 

boards with an historical emphasis on serving people of modest 

means. Like banks, credit unions offer a variety of financial, deposit, 

and loan products to consumers.

• Nonbank entities. Entities that are not financial institutions and may be 

involved in a variety of mortgage activities, including servicing and 

originating loans. Nonbank entities generally do not offer deposit or 

credit card products to consumers.

• Subservicers. Third-party servicers that have no investment in the 

loans they service. Banks, credit unions, and nonbanks may 

outsource loan servicing activities to a subservicer that performs the 

same administrative functions the bank, credit union, or nonbank 

would to service the mortgage loan.

All U.S. depository institutions that have federal deposit insurance have a 

federal prudential regulator that generally may issue regulations and take 

enforcement actions against institutions within its jurisdiction. The federal 

prudential regulators, which are the Office of the Comptroller of the 

Currency (OCC), FDIC, and Federal Reserve, along with the credit-unionregulating NCUA, oversee depository institutions for safety and 

soundness purposes and for compliance with other laws and regulations 

 8

We use the FDIC’s definition of a community bank, which incorporates an asset size 

threshold—generally including banks with less than $1 billion in assets—and other 

characteristics, including if it is part of a banking organization that has loans or core 

deposits, has limited amounts of foreign assets, has limited amounts of assets in specialty 

banks like credit card banks or trust companies, and is either relatively small or has large 

amounts of loans and core deposits and a limited geographic scope. The asset size 

threshold is not a strict requirement. Larger banks may be considered community banks if 

they meet other criteria such as having a loan-to-asset ratio greater than 33 percent. See 

Federal Deposit Insurance Corporation, FDIC’s Community Banking Study.
Page 6 GAO-16-448 Mortgage Servicing

that fall within the scope of the relevant prudential regulator’s authority 

(see table 1).9

Table 1: Federal Prudential Regulators and Their Basic Prudential Functions, as of June 2016 

Agency Basic function 

Office of the Comptroller of the Currency Charters and supervises national banks, federal savings associations (also known as 

federal thrifts), and federal branches and agencies of foreign banks, supervises 

subsidiaries of national banks and federal thrifts. 

Board of Governors of the Federal 

Reserve System 

Supervises state-chartered banks that opt to be members of the Federal Reserve System, 

depository institution holding companies (bank holding companies and savings and loan 

holding companies), and the nonbanking subsidiaries of those entities.

Federal Deposit Insurance Corporation Supervises state-chartered banks that are not members of the Federal Reserve System, 

as well as state savings banks and thrifts and state chartered branches of foreign banks; 

insures the deposits of all banks and thrifts that are approved for federal deposit 

insurance; has the authority to conduct insurance or backup examinations for any insured 

institutions; resolves all failed insured banks and thrifts; and has the authority to resolve 

certain large bank holding companies and nonbank financial companies, if appointed 

receiver by the Secretary of the Treasury after the statutory process. 

National Credit Union Administration Charters and supervises federally chartered credit unions and insures savings in federal 

and most state-chartered credit unions. 

Source: GAO. | GAO-16-448

Note: The Federal Deposit Insurance Corporation (FDIC) insures deposits in insured banks and thrifts 

for at least $250,000. FDIC promotes the safety and soundness of these institutions by identifying, 

monitoring, and addressing risks to the deposit insurance funds and limiting the effect on the financial 

system when a bank or thrift fails.

Additionally, the Dodd-Frank Act transferred consumer financial 

protection regulation and some other authorities regarding certain federal 

consumer financial laws from other federal banking regulators to CFPB,

to help foster consistent enforcement of federal consumer financial 

laws.10 CFPB has supervision and primary enforcement authority for most 

federal consumer financial laws for insured depository institutions with 

more than $10 billion in assets and their affiliates as well as certain 

nonbank entities. The prudential regulators—the Federal Reserve, Office 

 9

For a more detailed discussion of the regulatory framework for bank holding companies 

and savings and loan holding companies, see GAO, Bank Holding Company Act: 

Characteristics and Regulation of Exempt Institutions and the Implications of Removing 

the Exemptions, GAO-12-160 (Washington, D.C.: Jan. 19, 2012). Nonbank servicers are 

subject to different safety and soundness regulation and different capital rules. See 

GAO-16-278.

10These authorities were transferred on July 21, 2011. 
Page 7 GAO-16-448 Mortgage Servicing

of the Comptroller of Currency, Federal Deposit Insurance Corporation, 

and NCUA—have primary supervision and exclusive enforcement 

authority for federal consumer financial laws for institutions that have $10 

billion or less in assets. CFPB also has rulemaking authority to implement 

provisions of federal consumer financial law. The Dodd-Frank Act 

authorized CFPB to exercise its authorities for a number of purposes, 

including ensuring that consumers are provided with timely and 

understandable information that will help them make responsible 

decisions about financial transactions; protecting consumers from unfair, 

deceptive, or abusive acts and practices and from discrimination; and 

identifying and addressing outdated, unnecessary, or unduly burdensome 

regulations.11

In the primary market, lenders make, or originate, mortgage loans that are 

secured by property or real estate.12 Originators can choose to hold 

mortgages in their own portfolios or sell them into the secondary market. 

Servicing is a part of holding mortgage loans in portfolio, but the right to 

service a mortgage generally becomes a distinct asset—an MSR—when 

contractually separated from the loan if the loan is sold or securitized. In 

the secondary market, the government-sponsored enterprises Fannie 

Mae and Freddie Mac purchase mortgages that meet their underwriting 

criteria and either hold them in their own portfolios or pool them into 

mortgage backed securities (MBS) and sell them to investors. Ginnie Mae 

guarantees the timely principal and interest payments to investors in 

securities issued by approved institutions through its MBS program. Once 

the loan origination process is complete, the loan must be serviced until it 

is paid in full or foreclosure occurs (see fig. 1). 

Servicers perform various loan management functions, including 

collecting payments from the borrower, sending monthly account 

 11See 12 U.S.C. § 5511(b). CFPB’s rules implementing federal consumer financial laws 

apply to all entities within the scope of a particular rule, including smaller banks. See 12 

U.S.C. § 5512(b)(4). 

12For a more complete discussion of the primary and secondary mortgage markets, see 

GAO, Housing Finance System: A Framework for Assessing Potential Changes, 

GAO-15-131 (Washington, D.C.: Oct. 7, 2014) and Sean M. Hoskins, Katie Jones, and N. 

Eric Weiss, Congressional Research Service, An Overview of the Housing Finances 

System in the United States, R42995 (Washington, D.C.: Feb. 19, 2015).

Mortgage Servicing 

Market
Page 8 GAO-16-448 Mortgage Servicing

statements and tax documents, responding to customer service inquiries, 

maintaining escrow accounts for property taxes and hazard insurance, 

and forwarding monthly mortgage payments to the mortgage owners. In 

the event that borrowers become delinquent on their loan payments, 

servicers may offer borrowers the loss mitigation options made available

by the owners of the loan, which may include a workout or a loan 

modification that permits the borrower to stay in the home or other 

options, such as a short sale. In some cases, the servicer is the same 

institution that originated the loan. However, servicers may change over 

the life of a mortgage as MSRs are sold or transferred to other 

institutions.

Figure 1: Mortgage Servicing and Creation of a Mortgage Servicing Right

Note: In addition to banks, credit unions and nonbanks, independent mortgage servicers and 

subservicers may be involved in these arrangements. For instance, subservicers—which are typically 

nonbanks but can also be banks—may perform some or all servicing functions for the servicer of 

record but they do not own the mortgage servicing right.
Page 9 GAO-16-448 Mortgage Servicing

Mortgage Origination Rules. CFPB issued new rules related to 

underwriting of mortgage loans that became effective in January 2014.13

Generally, lenders making mortgage loans must make a reasonable, 

good faith determination of the borrower’s ability to repay the loan. This 

ability-to-repay determination requires lenders to meet minimum 

underwriting standards, including consideration and verification of a 

borrower’s income or assets, debt, and credit history. Lenders are 

presumed to comply with the ability-to-repay (determination) requirement 

when they make a qualified mortgage, which is a loan that meets specific 

product feature and underwriting criteria.14

Mortgage Servicing Rules. CFPB issued mortgage-servicing-related 

rules covering nine major topics that became effective January 10, 

2014.15 According to CFPB, the goals of the servicing rules are to provide 

better disclosure to consumers regarding their mortgage loan obligations, 

and to inform and assist them with options that may be available if they 

 13Ability-to-Repay and Qualified Mortgage Standards Under the Truth in Lending Act 

(Regulation Z), 78 Fed. Reg. 6408 (Jan. 30, 2013). Under CFPB’s ability-to-repay and 

qualified mortgage rule, which, as amended, became effective on January 10, 2014, the 

agency identified eight underwriting factors a lender must consider in relation to making 

the required good faith determination of a borrower’s ability to repay, including a 

borrower’s income, assets, employment, credit history, and monthly expenses. In general, 

the borrower also must have a total monthly debt-to-income (DTI) ratio, including 

mortgage payments of 43 percent or less for the loan to have qualified mortgage status. 

12 C.F.R. § 1026.43(e)(2)(vi). The ratio represents the percentage of a borrower’s income 

that goes toward all recurring debt payments, including the mortgage payment. Lenders 

use the DTI ratio as a key indicator of a borrower’s capacity to repay a loan. A higher ratio 

is generally associated with a higher risk that the borrower will have cash flow problems 

and may miss mortgage payments.

14According to CFPB, a qualified mortgage is a category of loans that have certain, more 

stable features that help make it more likely that a borrower is able to afford the loan. A 

lender must make a good-faith effort to determine that borrowers have the ability to repay 

a mortgage loan before it is made. This is known as the “ability-to-repay” rule. A creditor 

is presumed to have complied with the ability-to-repay requirements if the creditor makes 

a qualified mortgage loan.

15Mortgage Servicing Rules Under the Real Estate Settlement Procedures Act (Regulation 

X), 78 Fed. Reg. 10696 (Feb. 14, 2013); Mortgage Servicing Rules Under the Truth in 

Lending Act (Regulation Z), 78 Fed. Reg. 10902 (Feb. 14, 2013). The nine topics are: 

periodic billing statements; interest rate adjustment notices; prompt payment crediting and 

payoff statements; force-placed insurance; error resolution and information requests; 

general servicing policies, procedures, and requirements; early intervention with 

delinquent borrowers; continuity of contact with delinquent borrowers; and loss mitigation 

procedures. 

Recent Changes to 

Selected Mortgage 

Regulations and 

Regulatory Capital 

Requirements for MSRs
Page 10 GAO-16-448 Mortgage Servicing

have difficulty making their mortgage payments. The servicing rules also 

aim to ensure that borrowers are protected from harm in connection with 

the process of evaluating a borrower for a loss mitigation option or 

proceeding to foreclosure.16 The rules also address critical servicer 

practices relating to, among other things, correcting errors, imposing 

charges for force-placed insurance, crediting mortgage loan payments, 

and providing payoff statements.17

CFPB included a small servicer exemption from certain parts of the 

mortgage servicing rules.18 Generally, entities that service 5,000 or fewer 

mortgage loans, all of which they own or originated, are exempt, for 

example, from providing periodic statements. In general, entities that 

service one or more loans they neither originated nor own do not qualify 

as small servicers, even if they service 5,000 or fewer loans overall.

Regulatory Capital Requirements for MSRs.19 The Basel III framework 

addressed MSRs as part of its effort to improve the banking sector’s 

ability to absorb shocks arising from financial and economic stress, 

whatever the source; improve risk management and governance; and 

 16For complete loss mitigation applications received more than 37 days before a 

foreclosure sale, servicers must evaluate borrowers for all available loss mitigation options

and provide notice of decision; borrowers may appeal a denial of a loan modification so 

long as the borrower’s complete loss mitigation application is received 90 days or more 

before a scheduled foreclosure sale. Servicers are restricted from dual-tracking, or 

simultaneously evaluating a borrower for a loss mitigation option while preparing to 

foreclose on the property.

17Force-placed insurance is hazard insurance obtained by a servicer on behalf of the 

owner or assignee of a mortgage loan that insures the property securing the loan.

18A small servicer is a servicer that (1) services 5,000 or fewer mortgage loans for all of 

which the servicer (or an affiliate) is the creditor or assignee; (2) is a Housing Finance 

Agency (as defined in 24 C.F.R. § 266.5); or (3) is a nonprofit entity that services 5,000 or 

fewer mortgage loans for all of which the servicer or an associated nonprofit entity is the 

creditor. 12 C.F.R. § 1026.41(e)(4)(ii). 

19For the purposes of this report, regulatory capital requirements for U.S. banking 

organizations related to Basel III capital standards establish more restrictive capital 

definitions, higher risk-weighted assets, additional capital buffers, and higher requirements 

for minimum capital ratios. 
Page 11 GAO-16-448 Mortgage Servicing

strengthen banks’ transparency and disclosures.20 In 2013, the U.S. 

federal banking regulators adopted revised capital rules to implement 

many aspects of the Basel III capital framework and the Dodd-Frank Act 

that apply to banks, savings associations, and top-tier U.S. bank and 

savings and loan holding companies. The revised capital rules 

significantly changed the risk-based capital requirements for banks and 

bank holding companies, applied capital requirements to certain savings 

and loan companies, and introduced new leverage standards. These 

requirements include provisions related to MSRs that will be fully phased 

in by 2018, including:

• An amount equal to MSRs in excess of 10 percent of a bank’s 

common equity tier 1 (CET1) capital is deducted from CET1 capital.21

• An amount equal to the sum of MSRs, certain deferred tax assets 

arising from temporary differences, and significant investment in the 

capital of unconsolidated financial institutions in the form of common 

stock in excess of 15 percent of CET1 capital is also deducted from 

tier 1 capital.

• MSRs that have not been deducted from CET1 capital are added to 

risk-weighted assets with a 100 percent risk-weight during the 

transition period and will be subject to a 250 percent risk-weight once 

the revised regulatory capital rule is fully phased-in.22

In October 2015, NCUA also issued risk-based capital regulations.23

However, unlike the banking regulators, which applied the MSR 

provisions to all supervised banks, NCUA exempted credit unions with 

 20See Bank For International Settlements, Basel III: A Global Regulatory Framework; and 

Basel Committee on Banking Supervision, Basel III: International Framework for Liquidity 

Risk Measurement, Standards and Monitoring (Basel, Switzerland: December 2010, 

revised June 2011). The Basel framework was adopted in 2010 and revised in 2011 and 

2013.

21Common equity tier 1 capital includes in part common shares and retained earnings. 

Tier 1 capital, in part is the sum of common equity tier 1 capital and additional tier 1 (which 

can include non-cumulative perpetual preferred shares). 

22Prior to the new regulations taking effect, MSRs were included in tier 1 capital up to 100 

percent of their remaining unamortized book value (net of any related valuation 

allowances) reported on an institution’s balance sheet or 90 percent of their fair value, 

whichever was lower. See 78 Fed. Reg. at 62069.

23Risk-Based Capital, 80 Fed. Reg. 66626 (Oct. 29, 2015).
Page 12 GAO-16-448 Mortgage Servicing

$100 million or less in assets from its risk-based capital regulations.24

Also, all MSRs have a 250 percent risk-weight under the NCUA rule. 

According to NCUA’s final rule, the intent is to reduce the likelihood that a 

relatively small number of high-risk credit unions will exhaust their capital 

to cover their financial obligations and cause systemic losses under the 

Federal Credit Union Act, as amended. Under the act, all federally 

insured credit unions would have to pay through the National Credit Union 

Share Insurance Fund.25 NCUA’s risk-based capital rules will take effect 

on January 1, 2019.

The CFPB and federal prudential regulators face several statutory 

requirements in the rule development process, including the Regulatory 

Flexibility Act (RFA), as amended by the Small Business Regulatory 

Enforcement Fairness Act of 1996 (SBREFA), and the Paperwork 

Reduction Act of 1995 (PRA). The RFA requires that federal agencies 

consider the impact on small entities of certain regulations they issue and, 

in some cases, alternatives to lessen the regulatory burden on small 

entities.26 The PRA requires agencies to minimize the paperwork burden 

of their information collections and evaluate whether a proposed 

information collection is necessary for the proper performance of the 

functions of the agency.27 In addition, when promulgating any rule that 

would have a significant economic impact on a substantial number of 

small entities, CFPB must convene a review panel to collect the advice 

and recommendations of small-entity representatives about the potential 

 24NCUA defined small institutions in its October 2015 regulatory capital rules as those 

having $100 million or less in assets. See 80 Fed. Reg. 66626.

25The National Credit Union Share Insurance Fund is the federal fund created by 

Congress in 1970 to insure members’ deposits in federally insured credit unions. Federally 

insured credit unions must maintain 1 percent of their deposits in the Share Insurance 

Fund. The purpose of the Share Insurance Fund’s capitalization deposit is to cover losses 

in the credit union system. 

26Regulatory Flexibility Act, Pub. L. No. 96-354, 94 Stat. 1164 (1980) (codified as 

amended at 5 U.S.C. §§ 601-612). Under RFA, agencies, including financial regulators, 

generally must prepare a regulatory flexibility analysis in connection with certain proposed 

and final rules, unless the head of the issuing agency certifies that the proposed rule 

would not have a significant economic impact on a substantial number of small entities.

27Paperwork Reduction Act of 1995, Pub. L. No. 104-13, 109 Stat. 163 (codified as 

amended at 44 U.S.C. §§ 3501-3520).

Rule Development and 

Retrospective Review 

Processes
Page 13 GAO-16-448 Mortgage Servicing

impacts of the proposed rule prior to publishing the required initial 

regulatory flexibility analysis.28

Both CFPB and the banking regulators also have requirements to 

retrospectively review rules after rules are in effect. The Dodd-Frank Act 

requires CFPB to review its significant rules within 5 years of such rules 

taking effect.29 CFPB is required to assess the effectiveness of the rules 

in meeting the purposes and objectives of Title X of the Dodd-Frank Act 

and the specific goals stated by the agency, which include ensuring that 

consumers receive timely and understandable information to make 

responsible decisions about financial transactions and that markets for 

consumer financial products and services are fair, transparent, and 

competitive. In addition, the federal banking regulators are required by the 

Economic Growth and Regulatory Paperwork Reduction Act of 1996 

(EGRPRA) to review their regulations at least every 10 years to identify 

outdated, unnecessary, or unduly burdensome regulations, consider how 

to reduce regulatory burden on insured depository institutions, and 

eliminate unnecessary regulations as appropriate.

30 The report from the 

first EGRPRA review was submitted to Congress in 2007 and the second 

review is underway.31 The banking regulators have publicly stated they 

anticipate completing the current EGRPRA review by the end of 2016. 

NCUA conducts a voluntary review of its regulations on the same cycle 

and in a manner consistent with the EGRPRA review. Additionally, per 

NCUA’s internal policies, NCUA conducts a review of all of its regulations 

every 3 years and produces a non-binding memorandum for its board 

with suggestions on rules that should be revised or streamlined.

 28See 5 U.S.C. § 609(b). We have work underway looking at CFPB’s Small Business 

Review Panel process addressing the extent that CFPB considered small business inputs 

into its rulemaking and plan to issue a report later in 2016.

2912 U.S.C. § 5512(d). Within 5 years of the effective date of each significant rule, CFPB 

must conduct an assessment of the rule and publish a report of its assessment.

30Pub. L. No. 104-208, § 2222, 110 Stat. 3009, 3009-414 (codified at 12 U.S.C. § 3311).

31Joint Report to Congress, July 31, 2007; Economic Growth and Regulatory Paperwork 

Reduction Act, 72 Fed. Reg. 62036 (Nov. 1, 2007).
Page 14 GAO-16-448 Mortgage Servicing

Many of the representatives from 16 community lenders—9 community 

banks and 7 credit unions—that we interviewed noted that they have 

maintained their customer-focused business models and continued to 

service mortgages over the past 7 years. The total share of all mortgages 

serviced by community banks and credit unions has increased since 

2008. Some representatives of community banks and credit unions told 

us that to manage their increased compliance costs of CFPB’s mortgagerelated rules required under the Dodd-Frank Act, they made adjustments 

to certain business practices.

Based on our analysis, the total share of all U.S. residential mortgages 

serviced by community lenders increased between 2008 and 2015. 

Specifically, between the first quarter of 2008 and the third quarter of 

2015, the share of mortgages serviced by community banks increased 

from about 3.4 percent to about 6.8 percent, and the share serviced by 

credit unions rose from about 3.1 percent to about 5.7 percent (see fig. 2). 

The largest community banks and credit unions accounted for most of the 

growth in the share of servicing by community banks and credit unions. 

Over this period, the amount of residential mortgages outstanding fell 

from about $11.3 trillion to about $10 trillion.

Figure 2: Estimated Share of Residential Mortgages Serviced by Community Banks, Credit Unions, and Nationwide, Regional, 

and Other Banks, First Quarter 2008 through Third Quarter 2015 (percentage)

Community Lenders 

Continue to Service 

Mortgages as 

Regulatory 

Requirements 

Increase

The Share of Mortgages 

Serviced by Community 

Lenders Has Increased 

Since 2008
Page 15 GAO-16-448 Mortgage Servicing

Note: We used data on banks and credit unions that filed Call Reports for the period from the first 

quarter of 2008 through the third quarter of 2015. We identified community banks using Federal 

Deposit Insurance Corporation’s Historical Community Banking Reference Data. Banks that are not 

community banks include nationwide and regional banks, internationally active banks, and specialty 

banks. We estimated the share of outstanding residential mortgages a bank services by adding the 

unpaid principal balance of residential mortgages held for investment, sale, or trading to the unpaid 

principal balance of residential mortgages serviced for others and dividing the result by total 

outstanding residential mortgages. We estimated the share of outstanding residential mortgages a 

credit union services by adding the amount of residential mortgages on its balance sheet to the 

amount of mortgages serviced for others and dividing the result by total outstanding residential 

mortgages. These estimates may overstate the fraction of residential mortgages a bank or credit 

union services because banks and credit unions may not service all of the residential mortgages on 

their balance sheet.

 

Nationwide, regional, and other banks continue to service more than half 

of the market. However, nonbank servicers—servicers that are not banks 

or credit unions and also are not affiliates of banks or credit unions—have 

increased their market presence. We previously estimated that the share 

of U.S. residential mortgages serviced by nonbank servicers increased 

from approximately 6.8 percent in the first quarter of 2012 to 

approximately 24.2 percent in the second quarter of 2015.32 At the same 

time, the share serviced by the largest nationwide, regional, and other 

banks decreased from about 75.4 percent to about 58.6 percent.

Many of the 16 community lenders we interviewed, which included 

representatives from 9 community banks and 7 credit unions, and several 

industry associations we spoke with told us that community banks and 

credit unions serviced mortgages held in portfolio or held MSRs because 

these activities generated income and allowed them to maintain strong 

relationships with their customers. Some of these community lenders and 

industry associations noted that holding mortgage loans in portfolio and 

servicing these mortgage loans helped with overall profitability. For 

example, the servicing revenue can offset a reduction in income from 

originating loans when interest rates rise. Conversely, when interest rates 

decline, borrowers are more likely to prepay or refinance their mortgage 

loans, and servicing revenue may decline, while income from new 

mortgage loan originations might increase. Also, representatives at these 

institutions and two industry associations noted that servicing mortgages 

allowed them to offer customers other revenue-producing products and 

services. For example, representatives at one credit union told us that 

 32See GAO-16-278.
Page 16 GAO-16-448 Mortgage Servicing

servicing mortgages provides it with the opportunity to develop borrowers 

into full members with checking and savings accounts and car loans.

In addition to revenue, many community lenders noted that they and their 

customers benefit from the close relationship maintained when these 

institutions service mortgages. Representatives at several institutions we 

interviewed emphasized that they were well positioned to work directly 

with customers experiencing hardship to mitigate losses. For example, 

representatives at one community bank told us that a customer who could 

not make a mortgage payment could meet directly with a bank 

representative to develop a payment plan. Customers of community 

lenders whose mortgages are serviced by these institutions may 

potentially also benefit by not being at risk of errors occurring during a 

transfer of servicing, a process that has resulted in violations of consumer 

protection laws and other regulations. As we noted in our March 2016 

report on nonbank servicers, transfer errors can be especially harmful for 

borrowers in delinquency or in the middle of loss mitigation proceedings.33

Representatives at several industry associations and community lenders 

that we interviewed for this report told us that community banks and credit 

unions preferred to retain MSRs even if they sold the mortgages in the 

secondary market because they were able to maintain close customer 

contact should issues arise. A representative at one credit union told us 

that it had sometimes needed to step in on behalf of customers to help 

resolve issues, such as escrow errors, on mortgage loans they had sold 

without retaining the MSRs.

 33See GAO-16-278.
Page 17 GAO-16-448 Mortgage Servicing

Many community lenders that we interviewed noted that they continued to 

service mortgages in their portfolio or to hold MSRs on loans sold to the 

secondary market in spite of increased compliance costs of mortgagerelated requirements resulting from new rules instituted pursuant to the 

Dodd-Frank Act.34 These rules cover both origination and servicing of 

mortgage loans. They include new requirements, such as minimum 

underwriting standards for mortgage loan originators, disclosures to 

consumers about their mortgage loan obligations, and loss mitigation 

procedures. Some community lenders that we spoke with noted that they 

had increased staff, updated their data systems, or hired third parties to 

assist with compliance activities to meet CFPB’s servicing rules. Similarly, 

in our December 2015 report on the effect of Dodd-Frank Act regulations 

on community banks and credit unions, we noted that representatives at 

community lenders we interviewed and CFPB stated that the compliance 

costs incurred by community lenders to implement new disclosures 

included costs of having to work with third-party vendors to update their 

loan origination and documentation system software.35 In an industry 

survey of a nonprobability sample of banks in which the majority of 

respondents had less than $1 billion in assets, over 80 percent of 

respondents noted that increased personnel costs and staff time allocated 

to compliance issues were the primary drivers of increased compliance 

 34See Escrow Requirements Under the Truth in Lending Act (Regulation Z), 78 Fed. Reg. 

4726 (Jan. 22, 2013); Ability-to-Repay and Qualified Mortgage Standards Under the Truth 

in Lending Act (Regulation Z), 78 Fed. Reg. 6408 (Jan. 30, 2013); Mortgage Servicing 

Rules Under the Real Estate Settlement Procedures Act (Regulation X), 78 Fed. Reg. 

10696 (Feb. 14, 2013); Mortgage Servicing Rules Under the Truth in Lending Act 

(Regulation Z), 78 Fed. Reg. 10902 (Feb. 14, 2013).

35GAO, Dodd-Frank Regulations: Impacts on Community Banks, Credit Unions and 

Systemically Important Institutions, GAO-16-169 (Washington, D.C.: Dec. 30, 2015). 

Many Community Lenders 

Reported Spending More 

in Response to Regulatory 

Requirements and Some 

Adjusted Business 

Activities, Potentially 

Affecting Customers
Page 18 GAO-16-448 Mortgage Servicing

costs. In addition, nearly 70 percent cited increased costs for third-party 

vendor services.36

Some representatives at community banks and credit unions we spoke 

with commented that CFPB’s exemptions for small servicers and creditors 

had been helpful to their businesses and customers. Several community 

lenders noted that CFPB’s small servicer exemption, which excludes from 

certain parts of CFPB’s mortgage servicing rules entities that service 

5,000 or fewer mortgages, had been helpful in reducing some of their 

compliance requirements.37 For example, representatives at one 

community bank noted that it was nearing the threshold and would have 

to create additional processes and install software, but would not 

intentionally limit its growth to qualify for the exemption. The community 

bank representatives also noted that the bank was preparing for the 

additional regulatory requirements by forming a mutual holding company 

with another bank to achieve greater economies of scale. 

Representatives at another bank noted that CFPB’s small creditor 

exemption has allowed the bank to make loans that are considered 

qualified mortgages based on the bank’s evaluation of a customer’s debt 

 36American Bankers Association, 22nd Annual ABA Real Estate Survey Report

(Washington D.C.: 2015). The 22nd Real Estate Lending Survey had the participation of 

182 banks. The web survey was sent out to over 3,000 banks and elicited response from 

182 banks for a response rate of 6 percent overall. The data were collected from March 4, 

2015, to April 17, 2015, and in most cases report calendar year or year-end results. In 

other cases, data reflect current activities and expectations at the time of data collection. 

Of the survey participants, 68 percent of respondents were commercial banks and 32 

percent were savings institutions. About 77 percent of the participating institutions had 

assets of less than $1 billion. Because the survey relies on a nonprobability sample, the 

results cannot be used to make generalizations about all commercial banks and thrifts. 

37According to CFPB documentation, this definition covers substantially all of the 

community banks and credit unions that are involved in servicing mortgages. Although the 

rules exempt small servicers from certain provisions, they require, for example, all 

servicers to respond to written notices of errors received from borrowers, and with respect 

to loss mitigation, a small servicer is required to comply with two requirements: (1) a small 

servicer may not make the first notice or filing required for a foreclosure process unless a 

borrower is more than 120 days delinquent, and (2) a small servicer may not proceed to 

foreclosure judgment or order of sale, or conduct a foreclosure sale, if a borrower is 

performing pursuant to the terms of a loss mitigation agreement.
Page 19 GAO-16-448 Mortgage Servicing

and income even though the customer did not meet the specific debt-toincome ratio required under CFPB’s rule.38

Some community lenders noted that to manage the increased compliance 

costs, they made adjustments to both loan origination and servicing 

business practices that could affect their customers’ costs or choices. 

These adjustments included raising fees and interest rates and changing 

product offerings. Representatives at one credit union noted that while it 

had absorbed additional regulatory compliance costs into its general 

overhead expenses, it had to raise additional revenue to cover these 

additional expenses, such as increasing underwriting fees for mortgage 

applications. Several institutions noted that they no longer offered 

customers certain products because offering them would require 

additional compliance testing to meet regulatory requirements. For 

example, a representative at one community bank said that it no longer 

offers home equity lines of credit to its customers due to costs associated 

with complying with CFPB’s rules related to increased disclosures to the 

customer.39 Representatives at another community bank said it no longer 

offered bridge loans—short-term loans typically used when a consumer is 

 38Under CFPB’s Ability-to-Repay and Qualified Mortgage Standards Under the Truth in 

Lending Act (Regulation Z), 78 Fed. Reg. 6408 (Jan. 30, 2013) (ATR/QM rule) rule, which, 

as amended, became effective on January 10, 2014, generally, lenders making qualified 

mortgages must make a good-faith effort to determine that the borrower has the ability to 

repay the mortgage loan by documenting a borrower’s income, assets, employment, credit 

history, and monthly expenses. The ATR/QM rule sets out several categories of qualified 

mortgage: general, temporary, and small creditor. Although small creditors must consider 

and verify the borrower’s debt-to-income ratio, these loans are not subject to a specific 

debt-to-income ratio, such as the 43 percent or less determination under the general 

category. These loans must be made by small creditors and generally held in portfolio for 

at least 3 years. Small creditors are generally creditors that together with their affiliates 

have less than $2 billion in assets (adjusted annually for inflation) and originated no more 

than 2,000 first-lien mortgage loans in the preceding year. Ability-to-Repay and Qualified 

Mortgage Standards Under the Truth in Lending Act (Regulation Z), 78 Fed. Reg. 35430, 

35503 (June 12, 2013) and 80 Fed. Reg. 59944, 59968 (Oct. 2, 2015). 

39A home equity line of credit is a form of revolving credit in which a borrower’s home 

serves as collateral. Many lenders set the credit limit on a home equity line by taking a 

percentage of the home’s appraised value and subtracting from that the balance owed on 

the existing mortgage.
Page 20 GAO-16-448 Mortgage Servicing

buying a new home before selling the consumer’s existing home—to its 

customers.40

Other community lenders told us that despite increased mortgage-related 

regulatory requirements under the Dodd-Frank Act, they ensured their 

customers’ access to credit and maintained close customer contact. 

According to an FDIC report, community banks are often considered to be 

“relationship” bankers and tend to base credit decisions on local 

knowledge and long-term relationships with customers.41 Representatives 

at some community banks and credit unions we spoke with noted that 

because of their familiarity with customers, they were retaining mortgage 

loans in their portfolios that no longer met tighter credit restrictions in the 

secondary market under the Dodd-Frank Act.42 They explained that 

holding these mortgage loans allowed them more flexibility in their 

underwriting of these mortgage loans, which facilitated greater access to 

credit for their customers. Another community lender told us that although 

regulatory compliance costs necessitated having to outsource mortgage 

servicing to a third-party servicer, a credit union service organization, for 

its mortgage servicing activities, the credit union still speaks directly with 

 40Usually secured by the existing home, a bridge loan provides financing for the new 

home (often in the form of the down payment) or mortgage payment assistance until the 

consumer can sell the existing home and secure permanent financing. Bridge loans 

normally carry higher interest rates, points, and fees than conventional mortgages, 

regardless of the consumer’s creditworthiness.

41Community banks tend to focus on providing essential banking services in their local 

communities, and are often considered to be “relationship” bankers. This means that they 

have specialized knowledge of their local community and their customers. Because of this 

expertise, community banks tend to base credit decisions on local knowledge and 

nonstandard data obtained through long-term relationships and are less likely to rely on 

the models-based underwriting used by larger banks. See Benjamin R. Backup and 

Richard A. Brown, “Community Banks Remain Resilient Amid Industry Consolidation,”

FDIC Quarterly, vol. 8, no. 2, 2014 accessed on March 29, 2016 at 

https://www.fdic.gov/bank/analytical/quarterly/2014_vol8_2/article.pdf.

42The enterprises generally purchase conforming loans, which are mortgage loans that 

meet certain criteria for size, features, and underwriting standards. The enterprises’

underwriting includes assessments of measures of the credit risk of purchasing 

mortgages, such as borrower credit scores and debt-to-income ratios. For example, the 

enterprises have a debt-to-income ceiling of 45 percent. 
Page 21 GAO-16-448 Mortgage Servicing

borrowers who typically prefer to communicate with the mortgage loan 

officer because they have a pre-existing relationship.43

Although new regulations related to mortgage lending and servicing may 

increase compliance costs for community banks, our analysis suggests 

that these lenders generally appear to be participating in residential 

mortgage lending much as they have in the past. We found that for every 

quarter from the first quarter of 2001 through the third quarter of 2015, 

over 97 percent of community banks of all sizes had residential 

mortgages on their balance sheets (see fig. 3).44 For most community 

banks with residential mortgages, these mortgages continued to average 

at least 10 percent of assets in their portfolio. Over the period from the 

first quarter of 2001 through the third quarter of 2015, median residential 

mortgages were 11 percent to 15 percent of assets for the smallest 

community banks and 16 percent to 20 percent of assets for larger 

community banks.45 In addition, median residential mortgages as a 

percentage of assets have generally increased in the past couple of years 

for community banks of all sizes. Thus, community banks generally do not 

appear to be shifting their portfolios away from mortgage lending.

 43Credit union service organizations are entities that are owned by federally chartered or 

federally insured state-chartered credit unions and that are engaged primarily in providing 

products or services to credit unions or credit union members. See 12 C.F.R. § 712.1(d).

44We used total assets to measure size and we divided all banks—community banks and 

nationwide, regional, and other banks—into five equal-sized groups, or quintiles, based on 

their size each quarter. The first quintile contained the smallest banks, the second quintile 

contained the next largest banks, and so on through the fifth quintile, which contained the 

largest banks. In the third quarter of 2015, the largest bank in the first quintile had assets 

of about $73.9 million, the largest bank in the second quintile had assets of about $138.5 

million, the largest bank in the third quintile had assets of about $250.6 million, the largest 

bank in the fourth quintile had assets of about $545.1 million, and the largest bank in the 

fifth quintile had assets of about $2 trillion. There were 1,187, 1,248, 1,243, 1,234, and 

899 community banks in the first, second, third, fourth, and fifth quintiles, respectively. 

45We calculated residential mortgages as a percentage of assets for every bank and then 

calculated the median value of residential mortgages as a percentage of assets for 

community banks in each size group, where the median value is the middle or 50th

percentile value when the values are ordered from smallest to largest.

Community Lenders Are 

Continuing Residential 

Mortgage Lending and 

Have Not Changed Their 

Customer-Focused 

Business Model
Page 22 GAO-16-448 Mortgage Servicing

Figure 3: Percentage of Community Banks, Credit Unions, and Nationwide, Regional, and Other Banks with Residential 

Mortgages on their Balance Sheets by Size, First Quarter 2001 through Third Quarter 2015 (percentage)

Note: We used data on banks that filed Call Reports for the period from the first quarter of 2001 

through the third quarter of 2015 and on credit unions that filed Call Reports from the second quarter 

of 2002 through the third quarter of 2015. We assigned banks to groups each quarter using quintiles 

based on the distribution of their total assets, where the first quintile contains the smallest 20 percent 

of banks, the second group contains the next largest 20 percent of banks, and so on through the fifth 

quintile, which contains the largest 20 percent of banks. We identified community banks using 

Federal Deposit Insurance Corporation’s Historical Community Banking Reference Data. Banks that 

are not community banks include nationwide and regional banks, internationally active banks, and 

specialty banks. We also assigned credit unions to groups each quarter using quintiles based on the 

distribution of their total assets. Banks that hold residential mortgages are those that hold residential 

mortgages for investment, sale, or trading. Credit unions that hold residential mortgages are those 

that hold first lien residential mortgages or any other real estate loan or line of credit, which typically 

includes second mortgages, and home equity lines of credit, but may also include some member 

business loans secured by subordinate real estate liens. Thus, our calculations may overstate the 

fraction of credit unions with residential mortgages.

Similarly, the largest nationwide, regional, and other banks (those in the 

fifth quintile) generally do not appear to be changing the extent to which 

they participate in mortgage lending. Over the period from the first quarter 

of 2001 through the third quarter of 2015, over 89 percent of the largest 

nationwide, regional, and other banks had residential mortgages on their 
Page 23 GAO-16-448 Mortgage Servicing

balance sheets.46 Among those institutions that had residential 

mortgages, median residential mortgages were between 13 percent and 

16 percent of their assets. In contrast, the percentage of smaller 

nationwide, regional, and other banks (those in the first, second, third, 

and fourth quintiles) with residential mortgages on their balance sheet has 

generally decreased over the period.

Finally, our analysis suggests that credit unions are generally participating 

in residential mortgage lending at least as much as they have in the past. 

Throughout the period from the first quarter of 2002 through the third 

quarter of 2015, larger credit unions were more likely to have residential 

mortgages than smaller credit unions.47 However, for credit unions of all 

sizes, the percentage with residential mortgages increased. Among credit 

unions with residential mortgages, larger credit unions typically had more 

residential mortgages as a percentage of assets than small credit unions. 

Median residential mortgages ranged from 6 percent to 10 percent of 

assets for the smallest credit unions, and up to 24 percent to 35 percent 

of assets for the largest credit unions. While median residential 

mortgages as a percentage of assets have decreased for the smallest 

credit unions in recent quarters, they have remained constant or 

increased in recent quarters for larger credit unions. Like community 

banks, credit unions generally do not appear to be shifting their portfolios 

away from mortgage lending, with the possible exception of the smallest 

institutions.

 46There were 77, 16, 20, 30, and 364 nationwide, regional, and other banks in the first, 

second, third, fourth, and fifth quintiles, respectively. 

47As we did with banks, we used total assets to measure size and we divided credit unions 

into quintiles based on their size each quarter. In the third quarter of 2015, the largest 

credit union in the first quintile had assets of about $5.1 million, the largest credit union in 

the second quintile had assets of about $16.3 million, the largest credit union in the third 

quintile had assets of about $42.3 million, the largest credit union in the fourth quintile had 

assets of about $139.3 million, and the largest credit union in the fifth quintile had assets 

of about $72 billion. There were 1,244 credit unions in the first quintile and 1,243 credit 

unions in the second, third, fourth, and fifth quintiles. 
Page 24 GAO-16-448 Mortgage Servicing

Our analysis suggests that the capital treatment of MSRs would not likely 

have a material effect on most community banks because they generally 

did not have large concentrations of MSRs. Most community banks we 

interviewed confirmed that they did not need to make changes to their 

capital because of these rules, but those with large concentrations of 

MSRs were considering changes to their capital. We also do not expect 

the capital treatment of MSRs to affect most applicable credit unions 

based on our analysis and discussions with NCUA and credit unions.

Regardless of type or size, banks with large concentrations of MSRs may 

need to raise capital as a result of the new risk-based capital treatment of 

MSRs, but our analysis and most community banks we spoke with 

confirmed that these new rules were currently not an issue for them.48 As 

stated earlier, new banking requirements being phased in by January 1, 

2018, include requiring any amount of MSRs above 10 percent of a firm’s 

common equity tier 1 (CET1) capital to be deducted from CET1 capital. In 

addition, MSRs, adjusted for amounts deducted from CET1 capital, are 

currently assigned a 100 percent risk weighting, which means that every 

$1 in these MSRs adds $1 to risk-weighted assets. When the new 

requirements are fully phased in, any MSRs not deducted from CET1 

capital will be assigned a 250 percent risk weighting, which means every 

$1 in these MSRs will add $2.50 to risk-weighted assets (see fig. 4).

49

Some banks may have to increase CET1 capital to ensure that their ratios 

of CET1 capital to risk-weighted assets remain above the required 

 48Prudential regulators’ capital rules implementing Basel III include provisions related to 

MSRs that are to be fully phased in by 2018 and that will affect banks’ regulatory capital 

as well as their risk-weighted assets. For a more complete discussion of Basel III, see 

GAO, Bank Capital Reforms: Initial Effects of Basel III on Capital, Credit, and International 

Competitiveness, GAO-15-67 (Washington, D.C.: Nov. 20, 2014).

49Any amount of MSRs, certain deferred tax assets arising from temporary differences, 

and significant investments in the capital of unconsolidated financial institutions in the form 

of common stock (collectively, “threshold items”) above 15 percent of a firm’s CET1 capital 

must be deducted from CET1 capital. Starting January 1, 2018, any amount of the 

threshold items that is not deducted from CET1 capital will be risk weighted at 250 

percent. 

New Capital 

Treatment of 

Mortgage Servicing 

Rights Likely Will Not 

Affect Many 

Community Banks 

and Credit Unions

Most Community Banks 

and Credit Unions Hold 

Limited MSRs and Have 

Sufficient Capital to Cover 

Them
Page 25 GAO-16-448 Mortgage Servicing

minimum.50 Those banks that need to raise capital could face increased 

funding costs that they could, in turn, pass on to consumers through 

increased cost or reduced availability of credit. However, most community 

banks subject to the capital requirements we spoke with said that they did 

not expect to need to make changes to their capital because they did not 

hold large concentrations of MSRs and had sufficient capital.

Figure 4: Mortgage Servicing Rights and Risk-Based Capital Ratios

Note: Mortgage servicing rights (MSRs) up to 10 percent of common equity tier 1 (CET1) capital will 

receive a 250 percent risk weight when the new risk-based capital requirements are fully phased in. 

The remaining MSRs are not included in risk-weighted assets.

Based on our analysis, the capital treatment of MSRs likely would not 

have a material effect on most community banks because they generally 

did not have large concentrations of MSRs. Data on banks’ holdings of 

MSRs for the period from the first quarter of 2001 through the third 

quarter of 2015 showed that larger community banks were more likely to 

have MSRs than smaller community banks and that more community 

banks of all sizes were holding MSRs in 2015 than in 2001. However, 

these assets were typically a small fraction of total assets. Specifically, 

the median value of MSRs as a percentage of total assets has remained 

at less than 1 percent in each quarter since the first quarter of 2001. 

Additionally, our analysis showed that about 19 percent of community 

banks held MSRs and about 1 percent made MSR-related deductions 

from capital due to the amount of these assets they held as of the third 

quarter of 2015 (see fig. 5).

 50Two banking regulators noted that a bank’s capital is a function of its overall risk profile 

and not just the MSR amount. 
Page 26 GAO-16-448 Mortgage Servicing

Figure 5: Community Banks’ Capital Treatment of Mortgage Servicing Rights, 

2015Q3

Note: Estimates of the percentage of community banks holding mortgage servicing rights (MSR) and 

the percentage making deductions from their capital because of their MSR holdings are based on Call 

Report data from the third quarter of 2015.

Most community banks we interviewed confirmed that they did not need 

to make changes to their capital because of these rules, but those with 

large concentrations of MSRs were considering changes to their capital. 

Institutions with large concentrations of MSRs may choose to raise 

additional capital or sell MSRs to meet required minimum capital 

amounts, depending on banks’ holdings of other types of assets. Most 

representatives of community banks said that regulatory changes to the 

capital treatment of MSRs did not require them to sell MSRs or raise 

additional capital. For example, two banks stated that they were not close 

to the 10 percent threshold and one of the banks noted that their total 

MSR values were small relative to their total capital levels. 

However, two other banks we interviewed with large concentrations of 

MSRs (one of which was a midsized regional bank) stated that they would 

likely be affected by the MSR provisions in the risk-based capital rules 

and were considering options to raise capital levels by selling MSRs or 

other ways. For example, one community bank with less than $1 billion in 

assets told us that MSRs equaled 47 percent of total capital and that 

under the new risk-based capital rules the bank would need to make a 

$12 million deduction from regulatory capital. The bank officials stated 

that the rules would prevent the bank from growing as much as it would 
Page 27 GAO-16-448 Mortgage Servicing

like. Another midsized regional bank that services mortgages it originates 

and purchases MSRs from others said that it was evaluating how to 

reduce its MSR holdings, which currently equaled about 22 percent of 

total capital, without affecting revenue. Bank officials said that the 10 

percent threshold and the 250 percent risk weight were hindrances. One 

industry survey on capital treatment of MSRs found that about 5 percent 

of respondents had sold MSRs in the past year, and 14 percent were 

contemplating selling MSRs due to new regulatory requirements or capital 

treatment of MSRs compared to 11 percent in 2013.51

Further, our analysis of data on the ratios of CET1, tier 1, and total capital 

to risk-weighted assets for the first three quarters of 2015 showed that 

almost all community banks in every size group met or exceeded 

regulatory minimums in each of the first three quarters of 2015. Over 99 

percent of community banks of all sizes had CET1 capital ratios greater 

than or equal to the minimum required ratio of 4.5 percent plus a 2.5 

percent buffer in all three quarters. Similarly, over 98 percent had tier 1 

capital ratios greater than or equal to the minimum of 6.0 percent plus a 

2.5 percent buffer, and over 97 percent had a total capital ratio greater 

than or equal to the minimum of 8.0 percent plus a 2.5 percent buffer. 

Finally, we found that while most community banks of all sizes had capital 

ratios well in excess of the regulatory minimums, small community banks 

typically had higher capital ratios than larger community banks (see table 

2).

 51The American Bankers Association’s The 22nd Real Estate Lending Survey had the 

participation of 182 banks. The data were collected from March 4, 2015, to April 17, 2015, 

and in most cases reports calendar year or year-end results. In other cases, data reflect 

current activities and expectations at the time of data collection. Of the survey participants, 

68 percent of respondents were commercial banks and 32 percent were savings 

institutions. About 77 percent of the participating institutions had assets of less than $1 

billion. 
Page 28 GAO-16-448 Mortgage Servicing

Table 2: Median Risk-Based Capital Ratios for Community Banks by Size and Required Minimum Capital Ratios, Third Quarter 

2015

Median for first 

quintile

(smallest)

Median for 

second 

quintile

Median for 

third 

quintile

Median for 

fourth 

quintile

Median for

fifth quintile

(largest)

Required 

minimum plus 

2.5 percent 

buffer

CET1 capital ratio 18.3 16.4 15.2 14.5 13.1 7.0

Tier 1 capital ratio 18.3 16.4 15.2 14.5 13.2 8.5

Total capital ratio 19.5 17.6 16.4 15.6 14.3 10.5

Source: GAO analysis of data from the Federal Deposit Insurance Corporation and Federal Financial International Examinations Council. | GAO-16-448

Note: We used data on common equity tier 1 (CET1), tier 1, and total risk-based capital ratios 

reported by banks that filed Call Reports for the third quarter of 2015. We assigned banks to groups 

based on the distribution of their total assets. We divided banks into quintiles, where the first quintile 

contains the smallest 20 percent of banks, the second group contains the next largest 20 percent of 

banks, and so on through the fifth quintile, which contains the largest 20 percent of banks. We 

identified community banks using the Federal Deposit Insurance Corporation’s Historical Community 

Banking Reference Data.

We estimated how much banks’ CET1 capital ratios might increase if they 

replaced their MSRs with an asset such as U.S. Treasury securities that 

could be held in any amount without reducing capital and that was not 

included in risk-weighted assets. Analysis of Call Report data on capital 

and risk-weighted assets for 2015 suggests that replacing MSRs with 

U.S. Treasury securities would have little effect on the capital ratios of 

most community banks with MSRs. If a community bank replaced its 

MSRs with U.S. Treasury securities, which do not require a deduction in 

CET1 capital and which have a zero percent risk-weight, then its CET1 

capital would increase and its risk-weighted assets would fall, all else 

being equal. However, our estimates suggest that for most community 

banks with MSRs, the increase in the CET1 capital ratio would be less 

than 1 percentage point.52

NCUA finalized its risk-based capital rule on October 29, 2015. The rule 

applies to credit unions regulated by NCUA with assets over $100 million 

 52Our analysis has limitations and should be interpreted with caution. Specifically, 

available data do not include all of the amounts required to calculate how the CET1 capital 

ratio would change if banks with MSRs replaced their MSRs with U.S. Treasury securities, 

so we made assumptions that likely caused us to overestimate that change. In addition, 

the new risk-based capital requirements are not fully phased-in, and banks may not have 

fully adjusted to them, so these results may not be indicative of the extent to which banks 

will be affected by the new risk-based capital requirements in the future. See appendix I 

for more details of our analysis.
Page 29 GAO-16-448 Mortgage Servicing

and assigns a 250 percent risk-weight to MSRs.53 Based on discussions 

with NCUA and market participants, we also do not expect the capital 

treatment of MSRs to affect most applicable credit unions. NCUA officials 

told us that it did not expect the risk-based capital standards to prevent 

credit unions from holding MSRs. Some credit unions we spoke with also 

stated that NCUA’s risk-based capital rule was not likely to affect them. 

One credit union told us that it was well capitalized and that the riskbased capital rule would likely not affect it. This credit union has an MSR 

value of about $1.2 million, which equates to 3 percent of its capital. 

Another credit union stated that it would not need to do anything 

differently, and another did not see the risk-based capital threshold as an 

issue. NCUA’s risk-based capital rules will take effect on January 1, 2019.

Changes in banks’ funding costs and costs to consumers as a result of 

the regulatory capital rules are likely to be modest. Since most community 

banks likely would not have to increase capital because of these rules, 

costs to consumers similarly are not expected to increase. However, 

banks that do have to increase capital may need to cover increased 

funding costs, which could affect the cost and availability of credit to 

consumers.54 We found in a 2015 report on risk-based capital rules that 

raising capital to cover any capital shortfalls associated with new 

minimum capital requirements, including provisions related to MSRs, 

would likely have a modest effect on the cost and availability of credit to 

consumers.55 First, in that report we estimated that the total amount of 

capital that banks would need to raise to meet the new minimum capital 

ratios would likely amount to less than 1 percent of total assets. Second, 

our report noted that although funding costs for banks that increase equity 

capital to meet new minimum capital requirements could increase, we 

estimated that the change would likely be small, generally about 0.3 

percentage points or less. Finally, we estimated in our 2015 report that 

any increases in loan rates consumers experience due to increases in 

funding costs also are likely to be small in part because banks may be 

limited in the extent to which they can raise lending rates. In part, banks 

respond to changes in their funding costs in several ways. Banks that 

 53Risk-Based Capital, 80 Fed. Reg. 66626 (Oct. 29, 2015).

54Equity funding is generally more expensive than debt funding, so increasing capital will 

cause overall funding costs to increase, all else being equal.

55See GAO-15-67.
Page 30 GAO-16-448 Mortgage Servicing

need to raise capital may cover their increased funding costs by raising 

loan rates, shifting lending activity to lower-risk borrowers, and increasing 

efficiency.

Our analyses of loan transfer data show that smaller banks and credit 

unions maintained a relatively small level of participation in the MSR 

market. Between 2010 and the first half of 2015, MSRs representing the 

right to service totaled approximately $2.1 trillion worth of unpaid principal 

balance were sold via bulk sales associated with Fannie Mae, Freddie 

Mac, and Ginnie Mae mortgage pools.56 Over this period, banks and 

credit unions with assets of less than $10 billion represented about 13 

percent of MSR sales and 4 percent of MSR purchases as a portion of 

the unpaid principal balance within Freddie Mac and Ginnie Mae loan 

pools.57 Nonbanks accounted for most of the remaining purchases of 

MSRs backed by mortgages in Freddie Mac and Ginnie Mae mortgage 

pools over the period, and large banks and credit unions—those with 

more than $10 billion in assets—and nonbanks had roughly equal 

proportions of sales. See appendix II for more information about MSR 

purchases and sales.

Market participants, regulators, and mortgage brokers commented that 

recent trends in the market for MSRs have been influenced by a number 

of factors, including volatility in the value of MSRs, compliance risk, 

interest rates and prepayments, and regulatory capital requirements. For 

example, volatility in the value of MSRs makes pricing this asset difficult, 

which could affect banks’ decisions about retaining or selling MSRs. One 

regulator explained that MSR values could be volatile because of 

assumptions about their perceived value and noted that it advised 

institutions with MSR concentrations to use a third-party valuator to test 

these assumptions. One mortgage broker we spoke with explained that 

the fair value of MSRs is difficult to determine using observable measures 

 56The MSR associated with these loans often is measured as a function of the unpaid 

principal balance. In addition to bulk sales, MSRs may be sold through co-issue 

transactions in which the MSR is sold concurrently with the sale of the associated 

mortgage into the secondary market. According to one government-sponsored enterprise, 

these types of arrangements are more common among nonbanks than banks. 

57Data provided by Fannie Mae did not allow GAO to perform a comparable analysis to

Freddie Mac and Ginnie Mae.

Community Lenders Are 

Likely to Remain Minor 

Participants in MSR Sales, 

Which Can Be Influenced 

by Several Factors
Page 31 GAO-16-448 Mortgage Servicing

such as market prices or models. Also, fair value can be difficult to 

determine due to the lack of comparable active trades. According to one 

bank, it prefers not to manage the volatility associated with MSRs, given 

the need to reflect MSR values on the balance sheet.58 The bank sells its 

loans along with the servicing. The bank official added that he does not 

believe the bank’s ability to retain customers is negatively affected by its 

decision not to perform mortgage servicing. However, some community 

lenders we spoke with did not see volatility in MSR values as a concern 

for their business operations. These lenders viewed MSRs as a part of 

their broader business decisions (e.g., selling loans into the secondary 

market and retaining servicing) rather than as assets to be monitored 

closely.

Increased concerns about compliance risk, especially uncertainty 

associated with new regulations, could potentially decrease the value of, 

and thus demand for, MSRs. Failure to comply with CFPB’s new 

consumer financial laws related to originating and servicing mortgages 

can result in possible losses from litigation and enforcement actions. One 

government-sponsored enterprise expressed concern that regulatory 

costs and penalties might push competent servicers out of the market. 

One mortgage broker stated that aside from operational risks, there has 

been a cumulative effect of recent regulations on servicers, which 

includes increased costs, as well as uncertainty about future costs. In 

terms of compliance, a regional bank we spoke with stated that although 

the regulations brought more clarity around requirements and consistency 

in how bank staffs interact with customers, the resources needed to keep 

up with the regulations had the biggest effect on the bank. For example, 

the bank officials stated that in 2013 the bank prepared a project 

management document to map out the implementation and systems 

requirements needed to comply with all the new regulations. The bank set 

up committees around a number of regulatory changes. FHA officials 

shared this concern, stating that they had heard servicers complaining 

about uncertainty associated with the enforcement of regulations and 

penalties they might face. These officials believed that servicers needed 

more time to adapt their systems to existing regulations and increase their 

 58Under the fair value method of accounting, changes in the value of MSRs must be 

reflected on the bank’s balance sheet immediately.
Page 32 GAO-16-448 Mortgage Servicing

capacity to implement changes before additional regulations were 

developed.

Interest rates and prepayments may also affect the value of MSRs. Rising 

interest rates can reduce homebuyers’ willingness or ability to finance a 

real estate loan. Higher rates could negatively affect both the volume of 

loan originations and profitability. Rising interest rates and lower 

prepayments can result in increased value of MSR portfolios. In contrast, 

when interest rates fall, prepayment speeds increase as borrowers 

refinance their mortgages, causing a decline in MSRs’ value, because 

MSRs associated with prepaid loans are eliminated.59 Though MSR 

values are expected to decrease when prepayments increase, MSR 

holders may be able to recapture lost revenue if they have a mortgage 

origination business. While servicing is seen as a business hedge that 

offsets fluctuations in mortgage lending, changes in MSR values may 

occur more rapidly than changes in the rates of mortgage originations.60

In addition, a market development or policy change that encourages or 

discourages borrowers to refinance their loans could impact prepayments 

and thus the value of MSRs. For instance, in a January 2015 press 

release, the Department of Housing and Urban Development announced 

that the Federal Housing Administration would reduce annual insurance 

premiums that new borrowers pay by half a percent. This reduction in 

insurance premiums would lower the cost of owning a home and may 

contribute to a decrease in mortgage prepayments. According to the 

press release, the action is projected to save more than 2 million FHA 

homeowners an average of $900 annually and spur 250,000 new 

homebuyers to purchase their first homes over the next 3 years.

Finally, a few market participants we spoke with attributed some sales by 

large banks to nonbanks in the MSR market to the anticipated changes to 

the treatment of MSRs in risk-based capital requirements. For example, 

officials from one government-sponsored entity explained that in some 

 59One community bank with a relatively large concentration of MSRs related to 

commercial real estate said that they had prepayment penalties built into the terms of their 

loans that could protect investors from prepayments. 

60Servicing offsets fluctuations in mortgage lending. On the production side (i.e., 

originations), margins and volumes are highest when interest rates are low. Conversely, 

on the servicing side, MSRs gain value when interest rates rise (i.e., number of 

prepayments expected to decrease). 
Page 33 GAO-16-448 Mortgage Servicing

cases banks with high levels of MSRs on their balance sheet may be 

selling their MSRs to nonbank subsidiaries but would continue to service 

the loan as a subservicer. Additionally, one mortgage broker told us that 

regulatory capital requirements motivated some banks to sell MSRs, but 

added that for a majority of banks, regulatory capital requirements are a 

non-issue. As mentioned earlier, two banks with large concentrations of 

MSRs stated that they expected to be impacted by mortgage servicing 

regulatory capital rules in the future. These banks were considering 

options to adjust their required capital levels, such as selling MSRs, but 

they noted that selling MSRs could limit growth and decrease their overall 

profitability.

CFPB used several methods to estimate the impact of its mortgage 

servicing rules prior to finalizing them in 2013, and banking regulators 

incorporated changes to the treatment of MSRs when they estimated the 

overall impact of new regulatory capital rules in 2013. Both CFPB and 

banking regulators have begun preparing to retrospectively review these 

rules. However, CFPB’s plans are limited because the agency has not 

finalized an approach for retrospectively reviewing its mortgage servicing 

rules. Banking regulators have incorporated the regulatory capital rules as 

part of a retrospective review of all their rules—which is required every 10 

years—although the review will be complete before these rules are fully 

phased in.

CFPB used several methods to estimate the impact of its mortgage 

servicing rules prior to finalizing the rules in 2013. For example, prior to 

issuing proposed rules, CFPB officials met with representatives of small 

entities that would be subject to the rule to obtain input about CFPB’s 

proposals on mortgage servicing requirements. As noted earlier, when 

promulgating any rule that would have a significant economic impact on a 

substantial number of small entities, CFPB must convene a review panel 

to collect the advice and recommendations of small entity representatives 

prior to issuing a proposed rule.61 The panel received comments from 

representatives of 16 small entities, including 5 banks and 5 credit unions. 

These representatives’ comments played a significant role in persuading 

 61See 5 U.S.C. § 609(b). 

Regulators Estimated 

Impacts of New Rules 

Using Public Input 

and Data Analysis, 

but CFPB’s Plans for 

Reviewing Rules 

Have Limitations

CFPB Used Multiple 

Methods to Obtain Public 

Comments and Estimate 

Impact Prior to Issuing 

Final Mortgage Servicing 

Rules
Page 34 GAO-16-448 Mortgage Servicing

CFPB to propose exempting smaller servicers from certain mortgageservicing requirements, agency officials said.

CFPB also sought comments on its proposed rule both by issuing a 

formal request for public comment in the Federal Register and seeking 

public input via an interactive website called “Regulation Room” operated 

by Cornell University’s eRulemaking Initiative. Agency officials said they 

hoped the Regulation Room would allow CFPB to obtain a broader range 

of perspectives than those coming from a formal request for comment.62

CFPB received 347 comments from the Regulation Room on questions 

on topics such as options for avoiding foreclosure and getting errors fixed 

(see fig. 6). CFPB officials said comments on the proposed rules 

prompted the agency to scrutinize the definition of small servicers and 

ultimately led to CFPB expanding eligibility for the small-servicer 

exemption in the final rule. The final rule expanded the small-servicer 

exemption to institutions with up to 5,000 mortgages, up from the 

proposed rule’s 1,000-loan threshold. Specifically, public comments 

prompted the agency to analyze state-level averages on loan balances 

rather than the national averages used for the proposed rule.63 This 

change in the underlying data from national to state-specific information 

led CFPB to determine that a 5,000-loan threshold would better meet the 

agency’s goal of having the small-servicer exemption apply to nearly all 

banks with $2 billion or less in assets, officials said.64

 62The eRulemaking Initiative describes the Regulation Room website as a pilot project that 

provides an online environment for people and groups to learn about, discuss, and react 

to selected regulations proposed by federal agencies. It expands the types of public input 

available to agencies in the rulemaking process, while serving as a teaching and research 

platform.

63Using state-specific data on average loan balance—rather than national data—changed 

the results of the agency’s analysis of the proportion of banks that would qualify for the 

exemption, agency officials said. 

64In the preamble to its final rule, CFPB said two bank trade associations and the Small 

Business Administration recommended an exemption threshold of up to 10,000 loans. 

CFPB determined such a threshold was too high because it would also exempt 50 percent 

of banks and credit unions with more than $2 billion in assets, including 20 percent of 

those institutions with more than $10 billion in assets. See Mortgage Servicing Rules 

Under the Truth in Lending Act (Regulation Z), 78 Fed. Reg. 10902, 10981 (Feb. 14, 

2013).
Page 35 GAO-16-448 Mortgage Servicing

Figure 6: Sample Public Comments from the “Regulation Room” on CFPB’s Proposed Mortgage Servicing Rule

CFPB identified the exemption for small servicers as an element in 

mitigating compliance costs for small banks and credit unions. The 

agency said estimates showed that 99 percent of banks and credit unions 

with less than $1 billion in assets—and 98 percent of banks with $2 billion 

or less in assets—would be eligible for the small servicer exemption that 

would eliminate the requirements to comply with many components of the 

mortgage-servicing rules. For example, small servicers are not required to 

engage in certain types of early intervention with delinquent borrowers, 
Page 36 GAO-16-448 Mortgage Servicing

such as providing a written description of loss-mitigation options within 45 

days of a borrower’s delinquency.65

In addition to its approaches to obtain public comment, CFPB conducted 

several required analyses before issuing the final rule, including an 

analysis of the potential impact on small banks and credit unions, as 

required by the RFA.66 CFPB also considered the potential costs and 

benefits for consumers and all banks and credit unions, as required by 

the Dodd-Frank Act.67 For both analyses, CFPB described potential 

impacts but did not give a specific financial estimate of expected impacts, 

citing data limitations as a barrier to quantifying impacts. For example, 

CFPB cited data gaps in servicers’ costs for vendor services, such as the 

one-time and ongoing costs that vendors were likely to charge for 

creating and sending periodic statements to mortgage holders and new 

disclosures to customers for the reset of adjustable-rate mortgages. 

CFPB officials said they were hindered in trying to estimate these costs 

because many vendor contracts required banks to keep terms of their 

agreements confidential.68 CFPB also cited limitations in trying to quantify 

the benefits for customers of additional disclosures and other provisions 

of the mortgage servicing rules, noting that the rules were designed to 

 65Examples of requirements that small servicers must follow include prohibitions on 

making the first notice or filing required for a foreclosure process unless a borrower is 

more than 120 days delinquent and proceeding to foreclosure judgment or order of sale, 

or conducting a foreclosure sale, if a borrower is performing under the terms of a lossmitigation agreement.

66CFPB defined small banks and credit unions using a definition prepared by the Small 

Business Administration as those with $175 million or less in assets.

67See Pub. L. No. 111-203, § 1022(b)(2)(A), 124 Stat. 1376, 1980 (2010) (codified at 12 

U.S.C. § 5512(b)(2)(A)). We reviewed CFPB’s Dodd-Frank Act section 1022(b)(2) analysis 

conducted in connection with the final rule, available at Mortgage Servicing Rules Under 

the Truth in Lending Act (Regulation Z), 78 Fed. Reg. 10902, 10978 (Feb. 14, 2013), but 

did not assess the quality of the analysis.

68In the preamble to its final rule, CFPB discussed some elements that the agency 

believed would likely mitigate the total costs for regulated entities, even if those costs 

could not be quantified. For example, CFPB created sample disclosure forms that banks 

could directly adopt and allows coupon books to be provided in lieu of monthly statements 

for certain fixed-rate mortgages. See Mortgage Servicing Rules Under the Real Estate 

Settlement Procedures Act (Regulation X), 78 Fed. Reg. 10696, 10697 (Feb. 14, 2013). In 

addition, the one-time costs incurred by any single vendor for producing each new form 

were likely to be spread among a large number of servicers, which would mitigate the cost 

to each servicer.
Page 37 GAO-16-448 Mortgage Servicing

address a failure of the servicing market that exists because consumers 

dissatisfied with their mortgage servicer cannot easily change servicers. 

Benefits are especially hard to quantify when rule changes are intended 

to address market failures, CFPB said in the preamble to its final rule.69

The agency noted that none of the public commenters proposed methods 

for addressing this measurement limitation.

CFPB also analyzed the expected information collection burden on 

affected entities—an analysis required under the Paperwork Reduction 

Act of 1995—and produced a specific financial estimate. CFPB’s 

estimates show that the mortgage servicing regulations would lead 

servicers regulated by CFPB to spend an average of about 91 hours 

annually and an additional 4 hours in one-time efforts to comply with the 

information requirements associated with the rules. In addition, servicers 

would spend an average of about $900 each year for vendor services and 

another $700 in one-time costs to comply.70

 69Specifically, CFPB stated: “These potential benefits and costs, and these impacts, 

however, are not generally susceptible to particularized or definitive calculation in 

connection with this rule. The incidence and scope of such potential benefits and costs, 

and such impacts, will be influenced very substantially by economic cycles, market 

developments, and business and consumer choices, which are substantially independent 

from adoption of the rule. No commenter has advanced data or methodology that it claims 

would enable precise calculation of these benefits, costs, or impacts. Moreover, the 

potential benefits of the rule on consumers and covered persons in creating market 

changes that are anticipated to address market failures are especially hard to quantify.”

Mortgage Servicing Rules Under the Real Estate Settlement Procedures Act (Regulation 

X), 78 Fed. Reg. 10696, 10844 (Feb. 14, 2013).

70Costs likely would not be spread evenly, however. For example, banks that do not 

service mortgages on adjustable-rate loans would not need to address the new 

requirements for providing notice for adjustable-rate loans. CFPB officials said estimates 

of vendor costs were based on information obtained from larger banks. The information 

could not be extrapolated to its Regulatory Flexibility Analysis estimates pertaining to the 

costs for small banks to hire vendors, CFPB officials said.
Page 38 GAO-16-448 Mortgage Servicing

Banking regulators included the planned changes to the treatment of 

MSRs when estimating the impact of the regulatory capital rules issued in 

2013. However, they did not specifically isolate the impact only from the 

changes to the treatment of MSRs. Regulators’ impact estimates were 

prepared to comply with the RFA, which requires that regulators describe

the impact of significant rules on small entities.71 Although the RFA 

requires that regulators describe the overall rule’s impact on small 

businesses, it does not require regulators to isolate the impact of specific

parts of an overall rule.

Each of the three prudential banking regulators—the Federal Reserve, 

FDIC, and OCC—included the 10 percent threshold on MSRs when 

estimating the number of banks that would not conform with the new 

regulatory capital rules and the amount of their capital shortfall. NCUA, 

which issued a regulatory capital rule for credit unions in October 2015 

that exempted credit unions with less than $100 million in assets, did not 

conduct a Regulatory Flexibility Act analysis on small credit unions 

because it concluded that its rule would not have a material effect on 

those institutions.72 Although each banking regulator included the 10 

percent MSR deduction threshold, only one of the three regulators—

FDIC—also included the change in MSR risk weights in its estimation 

model.73 Officials from the Federal Reserve said that they did not 

incorporate the impact of increased risk weights in their analyses because 

the change in MSRs’ risk weights would not have a meaningful effect on 

the regulatory capital rules’ impact on small banks. OCC officials told us 

omitting the impact of the 250 percent risk weight was an oversight. When 

 71The banking regulators defined small banks and credit unions using a definition 

prepared by the Small Business Administration as those with $500 million or less in 

assets.

72See Risk-Based Capital, 80 Fed. Reg. 66626, 66704 (Oct. 29, 2015). Small credit 

unions, under NCUA’s definition, see 12 C.F.R. § 702.103(b), were those with $50 million 

or less in assets, and therefore NCUA’s regulatory capital rules would not impact small 

credit unions, NCUA concluded. When an agency determines and certifies that a 

regulation would not have a significant economic impact on a substantial number of small 

entities, a Regulatory Flexibility Act analysis is not required. See 5 U.S.C. § 605(b).

73As we previously noted, banking regulators changed risk weights for MSRs from 100 

percent to 250 percent for MSRs that are included in the calculation of CET1 capital under 

the risk-based capital framework, though these requirements are being phased in through 

2018. FDIC did not isolate the impact of changing risk weights when it estimated the 

overall rule’s impact on small businesses.

Banking Regulators 

Included Changes in the 

Treatment of MSRs in 

Their Impact Estimates 

Prior to Issuing New 

Regulatory Capital Rules
Page 39 GAO-16-448 Mortgage Servicing

OCC included the 250 percent risk weight in a re-analysis of the same 

bank data after our inquiry, OCC officials found that the number of banks 

needing capital would not change. In their analyses, the three banking 

regulators estimated that a combined 124 small banks would need to 

raise about $408 million by the end of 2018, when the regulatory capital 

rules are fully phased in.74 Banking regulators estimated that the 124 

banks would face costs of about $2.2 million per year collectively—or less 

than $18,000 per bank, on average—to raise this $408 million by 

converting debt to equity.75 Banking regulators did not identify how much 

of these costs would be attributable to MSRs specifically, but the $2.2 

million per year represents an upper limit of the maximum possible impact 

related to the MSR provisions.76

In a separate analysis, the banking regulators estimated that small banks 

as a group would spend about $242 million—about $43,000 per bank—to 

comply with the rule. For some banks, this would represent a significant 

impact to the bank, regulators found. For example, OCC estimated that 

compliance costs would represent a significant impact for about 19 

 74Regulators’ estimates were distributed as follows: The Federal Reserve estimated 9 

small banks would need to raise a total of about $11 million in additional capital; OCC 

found that 41 small banks would need to raise a total of about $164 million; and FDIC 

projected that 74 small banks would need to raise a total of about $233 million. See 78 

Fed. Reg. at 62153 (Federal Reserve) and 62154-55 (OCC); 79 Fed. Reg. at 20757 

(FDIC). When the OCC re-estimated impact to include the 250 percent risk weight 

provision, OCC officials determined that the amount of capital needing to be raised was 

still about $164 million. Federal Reserve officials re-estimated impact to include the 250 

percent risk weight provision using updated data from June 30, 2015, and found that 2 

small, state member banks would not meet the minimum capital ratio. The total capital 

shortfall for these 2 banks would be $8.6 million. (The Federal Reserve’s analysis that was 

published with the rule used data on state member banks from March 31, 2013.)

75The costs calculated were based on the loss of tax benefits associated with converting 

debt to equity. Converting debt to equity would be one possible method for complying with 

regulatory capital requirements.

76It is not possible to determine from the banking regulators’ analyses whether the 

projected capital shortfall was the result of changes in the capital treatment of MSRs or 

from some other aspect of the regulatory capital rule. Banks could fall short of the new 

regulatory capital standards even if MSRs represented far less than 10 percent of their 

common equity tier 1 capital, or even if they had no MSRs at all. Conversely, banks could 

meet the various regulatory requirements for common equity tier 1 capital, overall tier 1 

capital, and total regulatory capital even if their MSR holdings exceeded 10 percent of 

their common equity tier 1 capital if they had sufficient cushion from other types of 

regulatory assets.
Page 40 GAO-16-448 Mortgage Servicing

percent of small banks it supervised.77 In addition, banking regulators 

estimated the expected burden associated with additional information 

collection—as required by the Paperwork Reduction Act—and estimated 

that banks would not face any added monetary costs associated with 

information collection.

Banking regulators obtained public input about the MSR provisions of the 

regulatory capital rules during the rulemaking but said they did not revise 

their proposed changes to the treatment of MSRs as a result. In the 

preamble to the final rule, they noted that some commenters advocated 

different approaches both for the threshold for including MSRs in CET1 

capital and for risk weights assigned to MSRs. Regulators noted in the 

final rule that MSRs have long been fully or partially excluded from 

regulatory capital because of the high level of uncertainty regarding the 

ability of banking organizations to realize value from these assets. 

Officials from the three banking regulators also stated that their 

organizations, which had participated in the international Basel III 

agreement, wanted to adhere to the principles described in the 

agreement.

CFPB’s plans for retrospectively reviewing its mortgage servicing rules 

are incomplete, as the agency has not finalized its planned approach. 

This review is required under the Dodd-Frank Act within 5 years from the 

effective date of significant rules, which would be January 2019 for the 

mortgage servicing rules.78 The Dodd-Frank Act requires CFPB to publish 

a report assessing the effectiveness of significant rules in meeting the 

goals described by CFPB and the purposes and objectives of Title X of 

the Dodd-Frank Act. CFPB staff prepared a preliminary planning 

document in May 2015, but as of April 2016, the agency’s plan is not final. 

The Dodd-Frank Act also requires CFPB to invite public comments on 

recommendations to modify significant rules before the report is 

 77In its published rules, OCC and FDIC calculated that compliance costs would have a 

significant impact when the compliance costs exceeded 2.5 percent of banks’ total 

noninterest expense or 5 percent of banks’ annual salaries and employee benefits. The 

Federal Reserve did not publish a calculation in its final rule for the number of banks that 

would be significantly impacted by estimated compliance costs.

78See Pub. L. No. 111-203, § 1022(d), 124 Stat. 1376, 1984-85 (2010) (codified at 12 

U.S.C. § 5512(d)). 

CFPB’s Plans for 

Conducting Retrospective 

Reviews of the Mortgage 

Servicing Rules Are 

Incomplete, and Banking 

Regulators’ Reviews of 

Capital Rules Are Ongoing
Page 41 GAO-16-448 Mortgage Servicing

published.79 CFPB has not determined how the agency will obtain public 

comment on any recommendations.

OMB has provided guidance to independent agencies about effective 

approaches for retrospectively reviewing existing rules. While not required 

for independent agencies such as CFPB, OMB guidance suggests that 

plans for retrospective reviews of regulations should specify the outcomes 

and methodologies—such as the specific metrics, baselines, and 

analytical methods—that agencies plan to use in their reviews.80 CFPB’s 

plan has identified some potential methodologies for measuring 

outcomes, but the agency has not determined which specific approaches 

it will employ. OMB also has cited the benefits of providing members of 

the public with an opportunity to comment on draft plans because they 

may have useful information and perspectives for improving the quality of 

agencies’ planned approaches for retrospective reviews.81 In addition, we 

found in 2014 that public input from informed stakeholders such as 

regulated entities and policy advocacy groups could be useful in 

evaluating regulatory reforms.82 CFPB officials said that as of April 2016 

the agency had not decided whether to incorporate an opportunity for 

public input into its methodologies for analyzing the rules.

CFPB officials said a specific plan for reviewing the mortgage servicing 

rules had not been completed because it was too soon to identify the 

relevant data and because the agency wanted the flexibility to design the 

 79See § 1022(d)(3), 124 Stat. at 1985 (codified at 12 U.S.C. § 5512(d)(3)). 

80OMB memorandums M-11-10 and M-11-28 provide guidance to independent 

agencies—and OMB Circular A-4 provides guidance to all federal agencies—related to 

creating an overall process for reviewing existing rules. However, we believe the same 

guidance is relevant when agencies are required to review specific rules, as CFPB is 

required to do under section 1022(d) of the Dodd-Frank Act. For example, we found in 

2007 that if agencies fail to plan for how they will measure the performance of their 

regulations, and what data they will need to do so, they may continue to be limited in their 

ability to assess the effects of their regulations. See GAO, Reexamining Regulations: 

Opportunities Exist to Improve Effectiveness and Transparency of Retrospective Reviews, 

GAO-07-791 (Washington, D.C.: July 16, 2007).

81See OMB Memorandum M-11-19 and the related Executive Order 13563.

82GAO, Reexamining Regulations: Agencies Often Made Regulatory Changes, but Could 

Strengthen Linkages to Performance Goals, GAO-14-268 (Washington, D.C.: Apr. 11, 

2014).
Page 42 GAO-16-448 Mortgage Servicing

most effective method to analyze the rules. In addition, they noted there 

were trade-offs associated with seeking public input at the planning stage 

because it may add time and cost to the review. However, we found in a 

2007 report on retrospective reviews that agencies are better prepared to 

perform effective reviews if they identify potential sources of data and the 

measures that would be needed to assess effectiveness of the rules.83

For example, soliciting input during the planning process could better 

prepare CFPB by clarifying the feasibility of certain methodologies that 

the agency is considering, and potentially save time and agency 

resources if public input suggests that certain potential methodologies 

would not be feasible. Further delay in finalizing a plan may preclude an 

effective review if the agency were to forgo complex or time-consuming 

methodologies due to time constraints.84

Banking regulators reported two separate ongoing efforts to assess the 

potential impacts of the regulatory capital rule, including the provisions 

related to MSRs. The first effort is part of a review process established 

under EGRPRA, which requires that banking regulators review all of their 

rules at least once every 10 years.85 However, the current EGRPRA 

review is to be completed later this year—before the regulatory capital 

rules are fully in effect in 2019—and therefore banking regulators may not 

be able to determine the full impact from the EGRPRA review. The 

sources for public input as part of the EGRPRA process include six 

 83See GAO-07-791. We recommended that OMB officials provide guidance to regulatory 

agencies to consider, during the promulgation of certain new rules, how to measure the 

performance of the regulation—including how and when they will collect, analyze, and 

report the data needed to conduct a retrospective review. OMB implemented the 

recommendation by providing such guidance in 2011.

84Agency officials do not have direct experience with how long this review process will 

take because the agency has not yet completed any of these required 5-year retrospective 

reviews of significant rules. The agency was still developing its overall plan for conducting 

these reviews in February 2016. The first such review is expected be completed in late 

2018 for a rule addressing electronic remittance transactions, CFPB officials said.

85The first EGRPRA review was completed in 2007. If banking regulators complete the 

current review in 2016 as planned, the next review would be required to be completed by 

2026. NCUA also is conducting a similar review of its regulations. Although NCUA is not 

technically required to participate in the EGRPRA review process, it is conducting its own 

review “in keeping with the spirit of the law,” according to NCUA. NCUA has participated 

along with the banking regulators in the EGRPRA planning process but has developed its 

own regulatory categories that are comparable with those developed by the banking 

regulators.
Page 43 GAO-16-448 Mortgage Servicing

separate outreach sessions at various locations across the United States 

that allow the public to provide input during panel discussions.86 The 

regulatory capital rules were not part of the original information request 

for the current EGRPRA process because these rules had been recently 

promulgated and have not been fully phased in, but banking regulators 

added the regulatory capital rules to the list of those eligible for comment. 

Regulators also included the regulatory capital rules in one of its requests 

for written public comments as part of the EGRPRA process. The second 

effort is a separate study of the capital requirements for MSRs that was 

mandated by the Consolidated Appropriations Act, 2016. The law 

requires federal banking regulators and NCUA to study such issues as 

the impact of the MSR provisions on competition in the mortgage 

servicing business and on services to mortgage customers, as well as the 

risk to banking institutions in holding MSRs.87 As of June 8, 2016, the 

study had not been issued.

In addition to these planned reviews, banking regulators said that they 

often conducted other informal reviews as needed to evaluate the 

effectiveness of rules. For example, OCC officials said the agency 

considers the need to revise regulations based on other factors such as 

changes in the broader economy and feedback from financial institutions 

during agency outreach and interactions with OCC supervisory staff. 

Federal Reserve representatives said the agency periodically reviews its 

existing rules to see if they need to be updated, though there is no formal 

schedule for conducting such a review. FDIC officials also cited its bank 

examination process and other outreach sessions with a community bank 

advisory committee as other mechanisms for obtaining public input that 

could lead to additional review of existing rules. In 2007, we reported that 

agencies often found their discretionary reviews to be more productive 

and likely to generate action than mandatory reviews.88 However, we 

found that the mandatory EGRPRA process was an exception, with the 

 86Between December 2014 and December 2015, EGRPRA outreach meetings were held 

in Los Angeles, Dallas, Boston, Kansas City, Chicago, and Washington, D.C.

87Pub. L. No. 114-113, Div. E, tit. VI, § 634(b), 129 Stat. 2242, 2471 (2015). The report is 

required to be submitted to the Senate Committee on Banking, Housing, and Urban Affairs 

and the House Committee on Financial Services not later than 180 days after enactment 

of the appropriations act, or June 2016.

88See GAO-07-791.
Page 44 GAO-16-448 Mortgage Servicing

first EGRPRA cycle ending in 2006 generating at least four regulatory 

changes and more than 180 legislative proposals for regulatory relief.

Mortgage servicing is a substantial business for many community banks 

and credit unions, and the value of their MSRs exceeded $3 billion as of 

September 30, 2015. The Dodd-Frank Act requires that CFPB review 

significant rules to evaluate the rules’ effectiveness, seek public input on 

recommendations for modifying significant rules, and report on those 

review findings no later than 5 years after the rules take effect. For the 

mortgage servicing rules, this review must be completed by January 

2019. To allow CFPB to understand the rules’ impact, including for 

consumers and the market for consumer financial products, these 

retrospective reviews must be carefully planned to specify the metrics, 

baselines, and analytical methods to be used. We and OMB have found 

that these elements, as well as seeking public input before finalizing 

plans, can benefit the overall quality of a review. However, as of April 

2016, CFPB had not finalized a plan for reviewing the mortgage-servicing 

rules, including what methodologies to use and when to seek public input. 

Without a completed plan, CFPB risks not having enough time to perform 

an effective review.

To enhance the effectiveness of preparations for conducting a 

retrospective review of its mortgage servicing regulations, the Director of 

the Consumer Financial Protection Bureau should complete a plan to 

identify the outcomes CFPB will examine to measure the effects of the 

regulations, including the specific metrics, baselines, and analytical 

methods to be used. For example, in developing such a plan, CFPB could 

seek public input for information and perspectives to improve the quality 

of its review through feedback on available data or improvements on 

proposed methodologies.

We provided a draft of this report for review and comment to CFPB; HUD, 

including the Federal Housing Administration and Ginnie Mae; FDIC; 

Federal Housing Finance Agency (FHFA), including Fannie Mae and 

Freddie Mac; the Federal Reserve; NCUA; OCC; the Department of 

Veterans Affairs (VA); and the U.S. Department of Agriculture (USDA). 

CFPB and NCUA provided written comments, which we have reprinted in 

appendixes III and IV, respectively. FDIC; FHFA, including Freddie Mac; 

the Federal Reserve; OCC; and VA also provided technical comments 

which we have incorporated, as appropriate. HUD, including the Federal 

Conclusions

Recommendation for 

Executive Action

Agency Comments 

and Our Evaluation
Page 45 GAO-16-448 Mortgage Servicing

Housing Administration and Ginnie Mae; and USDA did not provide 

comments.

In its written comments, CFPB agreed to take steps to complete its plan 

for conducting a retrospective review of the mortgage servicing rules. 

While CFPB has developed a preliminary planning document that 

identifies potential methodologies for measuring outcomes, the agency 

stated that it is continuing to work on its plan. Specifically, CFPB intends 

to refine the scope and relative emphases of the assessment, the 

outcomes the assessment will likely focus on, potential ways to measure 

outcomes, the qualitative and quantitative information used, and the cost 

to gather such information. CFPB also stated that it intends to finalize its 

plan by incorporating each of these elements, while ensuring that 

sufficient time is allotted to make modifications should potential 

improvements or identified costs necessitate revisions.

In its written comments, NCUA stated that it agrees with the report’s 

conclusions as they relate to NCUA and the credit union industry. In 

particular, NCUA agrees with the conclusion that NCUA’s capital 

treatment of MSRs is unlikely to affect most credit unions.

As agreed with your office, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 30 days from the 

report date. At that time, we will send copies of this report to CFPB, 

HUD, FDIC, FHFA, the Federal Reserve, NCUA, OCC, VA, and USDA 

and other interested parties. In addition, the report will be available at no 

charge on the GAO website at http://www.gao.gov.
Page 46 GAO-16-448 Mortgage Servicing

If you or your staff have any questions about this report, please contact 

me at (202) 512-8678 or sciremj@gao.gov. Contact points for our Offices 

of Congressional Relations and Public Affairs may be found on the last 

page of this report. Key contributors to this report are listed in appendix V.

Sincerely yours,

Mathew J. Sciré

Director, Financial Markets and Community Investment
Appendix I: Objectives, Scope, and 

Methodology

Page 47 GAO-16-448 Mortgage Servicing

The objectives of our report were to examine (1) community lenders’

participation in the mortgage servicing market and potential effects of the 

Bureau of Consumer Financial Protection (commonly known as the 

Consumer Financial Protection Bureau or CFPB) mortgage servicing 

rules on those lenders, (2) potential effects of the risk-based capital 

treatment of mortgage servicing rights (MSR) on decisions about holding 

or selling MSRs, and (3) the process regulators used to estimate the 

impact of regulations addressing mortgage servicing requirements and 

the risk-based capital treatment of MSRs.

To describe the extent to which banks and credit unions are engaged in 

mortgage lending and servicing activities, we used data from the Board of 

Governors of the Federal Reserve System (Federal Reserve), the Federal 

Deposit Insurance Corporation (FDIC), the Federal Financial Institutions 

Examination Council (FFIEC), and the National Credit Union 

Administration (NCUA). For banks, we used quarterly data on banks that 

filed Call Reports (forms FFIEC 031 and 041) for the period from the first 

quarter of 2001 through the third quarter of 2015. We divided banks into 

groups based on their size and type.

• Size. We used total assets to measure size and we divided banks into

five equal-sized groups, or quintiles, based on their size each quarter. 

The first quintile contained the smallest banks, the second quintile 

contained the next largest banks, and so on through the fifth quintile, 

which contained the largest banks.

• Type. We assigned banks to groups based on whether or not they 

were a community bank—that is, we classified a bank as a community 

bank if it was identified as such in FDIC’s Historical Community Bank 

Reference Data dataset. In this dataset, a bank is a community bank if 

it is part of a banking organization that has loans or core deposits, a 

foreign assets-to-total assets ratio less than 10 percent, and has less 

than 50 percent of assets in certain specialty banks, including credit 

card specialists, consumer nonbank banks, industrial loan companies, 

trust companies, and bankers’ banks. (Consumer nonbank banks are 

financial institutions with limited charters that can make commercial 

loans or take deposits, but not both.) In addition, the banking 

organization must either have total assets less than an indexed asset 

size threshold or total assets greater than the indexed asset size 

threshold, a loan-to-assets ratio greater than 33 percent, a core 

deposits-to-assets ratio greater than 50 percent, more than one office 

but no more than the indexed maximum number of offices, offices in 

less than three large metropolitan statistical areas, offices in less than 

four states, and no single office with deposits greater than the indexed 

Appendix I: Objectives, Scope, and 

Methodology
Appendix I: Objectives, Scope, and 

Methodology

Page 48 GAO-16-448 Mortgage Servicing

maximum branch deposit size. (The asset size threshold is indexed to 

equal $250 million in 1985 and $1 billion in 2010. The maximum 

number of offices is indexed to equal 40 in 1985 and 75 in 2010. The 

maximum branch deposit size is indexed to equal $1.25 billion in 1985 

and $5 billion in 2010.)

In the third quarter of 2015, the largest bank in the first quintile had assets 

of about $73.9 million, the largest bank in the second quintile had assets 

of about $138.5 million, the largest bank in the third quintile had assets of 

about $250.6 million, the largest bank in the fourth quintile had assets of 

about $545.1 million, and the largest bank in the fifth quintile had assets 

of about $2 trillion. There were 1,187, 1,248, 1,243, 1,234 and 899 

community banks in the first, second, third, fourth, and fifth quintiles, 

respectively. There were 77, 16, 20, 30, and 364 nationwide, regional, 

and other banks in the first, second, third, fourth, and fifth quintiles, 

respectively.

To describe the extent to which banks of different sizes and types in our 

sample were engaged in mortgage lending and servicing activities, we 

determined whether each bank held residential mortgages for investment, 

sale, or trading and had MSRs.1 In addition, we calculated residential 

mortgages held for investment, sale, or trading as a percentage of total 

assets and MSRs as a percentage of total assets. Finally, we estimated 

the fraction of all outstanding residential mortgages that each bank 

serviced by adding the unpaid principal balance of residential mortgages 

held for investment, sale, or trading to the unpaid principal balance of 

residential mortgages serviced for others and divided the result by total 

outstanding residential mortgages. This calculation may overstate the 

fraction of residential mortgages banks service because the institutions 

may not service all mortgages held for investment, sale, or trading. We 

summarized the values of these variables for each quarter for each group 

of banks. Our analysis of banks has limitations and should be interpreted 

with caution. In particular, some new regulations related to mortgage 

lending and servicing have only recently become effective or are not yet 

fully implemented, and banks may not have fully adjusted to them. As a 

result, current trends may not be indicative of the extent to which banks 

participate in residential mortgage lending and servicing in the future. We 

 1

MSRs may include mortgage servicing assets that are commercial mortgage servicing 

assets or other nonresidential mortgage servicing assets.
Appendix I: Objectives, Scope, and 

Methodology

Page 49 GAO-16-448 Mortgage Servicing

assessed the data we used for this analysis by reviewing relevant 

documentation and by electronically testing the variables for missing 

values, invalid values, and outliers. We found them to be sufficiently 

reliable for the purpose of conducting our analysis.

For credit unions, we used quarterly data on those that filed Call Reports 

(form NCUA 5300) for the period from the second quarter of 2002 through 

the third quarter of 2015. We divided the credit unions in our sample into 

groups based on their size. As we did with banks, we used total assets to 

measure size and we divided credit unions into quintiles each quarter 

based on their size. Again, the first quintile contained the smallest credit 

unions, the second quintile contained the next largest credit unions, and 

so on through the fifth quintile, which contained the largest credit unions. 

In the third quarter of 2015, the largest credit union in the first quintile had 

assets of about $5.1 million, the largest credit union in the second quintile 

had assets of about $16.3 million, the largest credit union in the third 

quintile had assets of about $42.3 million, the largest credit union in the 

fourth quintile had assets of about $139.3 million, and the largest credit 

union in the fifth quintile had assets of about $72 billion. There were 1,244 

credit unions in the first quintile and 1,243 credit unions in the second, 

third, fourth, and fifth quintiles.

To describe the extent to which credit unions of different sizes were 

engaged in mortgage lending and servicing activities, we determined 

whether a credit union held residential mortgages on its balance sheet, 

and had MSRs. In addition, we calculated residential mortgages as a 

percentage of total assets and MSRs as a percentage of total assets. 

Finally, we estimated the fraction of all outstanding residential mortgages 

that each credit union serviced by adding residential mortgages on the 

balance sheet to mortgages serviced for others and dividing the result by 

total outstanding residential mortgages. As with community banks, this 

calculation may overstate the fraction of residential mortgages serviced 

because the institutions may not service all of the residential mortgages 

on their balance sheet and because mortgages serviced for others may 

include commercial mortgages. We summarized the values of these 

variables for each quarter for each group of credit unions. As with our 

analysis of banks, our analysis of credit unions has limitations. In 

particular, current trends may not be indicative of the extent to which 

credit unions participate in residential mortgage lending and servicing in 

the future. We assessed the data we used for this analysis by reviewing 

relevant documentation and electronically testing the variables for missing 

values, invalid values, and outliers. We found the data to be sufficiently 

reliable for the purpose of conducting our analysis.
Appendix I: Objectives, Scope, and 

Methodology

Page 50 GAO-16-448 Mortgage Servicing

To understand the regulatory framework for mortgage servicers, we 

reviewed applicable laws and regulations and relevant literature on 

community banks’ and credit unions’ participation in the mortgage 

servicing market. As part of this review, we selected academic studies 

and research by industry organizations, federal agencies, GAO, and 

others since the 2007–2009 financial crisis on the mortgage servicing 

market that focused on the role of community banks and credit unions. In 

particular, to examine the potential impacts of compliance with mortgagerelated regulatory requirements we reviewed the 2010 Dodd-Frank Wall 

Street Reform and Consumer Protection Act (Dodd-Frank Act) and the 

Consumer Financial Protection Bureau (CFPB) mortgage servicing rules 

established in accordance with the act. We focused our analysis on the 

final rules issued pursuant to the Dodd-Frank Act that became effective 

since 2013. For each rule, we reviewed the Federal Register release of 

the final rule document.

To assess the potential effects on banks of the capital treatment of MSRs 

under the prudential regulators’ capital rules implementing Basel III, we 

used data from FDIC and FFIEC. We used quarterly data on banks that 

filed Call Reports (forms FFIEC 031 and 041) for the first three quarters of 

2015. We divided banks into groups based on their size and type, as 

described previously. We collected data on banks’ common equity tier 1 

(CET1), tier 1, and total capital ratios and we determined whether the 

ratios met or exceeded regulatory minimum amounts, with and without a 

capital conservation buffer. We also counted the number of banks with 

MSRs that did and did not make deductions from CET1 capital based on 

the amount of MSRs on their balance sheets. Finally, for banks with 

MSRs, we estimated what the CET1 capital ratio would be if banks 

replaced MSRs with U.S. Treasury securities or some other asset with a 

zero risk weight that is not deducted from CET1 (hereafter, the 

counterfactual CET1 capital ratio). The CET1 capital ratio is the ratio of 

CET1 capital to risk-weighted assets. Under the prudential regulators’ 

capital rules implementing Basel III, replacing MSRs with U.S. Treasury 

securities would affect both CET1 capital (the numerator) and riskweighted assets (the denominator). We took the following steps to 

estimate the numerator and the denominator of our counterfactual CET1 

ratio:

• To estimate the numerator, we assumed that if banks replaced their 

MSRs with U.S. Treasury securities, then they would make no MSRrelated deductions from CET1 capital. Thus, we estimated the 

numerator by adding a bank’s MSR-related deductions back to its 

CET1 capital. Our assumption leads us to overestimate counterfactual 
Appendix I: Objectives, Scope, and 

Methodology

Page 51 GAO-16-448 Mortgage Servicing

CET1 capital because replacing MSRs with U.S. Treasury securities 

may not cause all MSR-related deductions to fall to zero. However, 

we make this assumption because we cannot calculate exactly how 

all of the MSR-related deductions would change with available data.

• To estimate the denominator, we assumed that if banks replaced their 

MSRs with U.S. Treasury securities, their risk-weighted assets would 

decrease by an amount equal to 10 percent of their CET1 capital, riskweighted at 100 percent during the transition period and at 250 

percent fully phased in. Under the prudential regulators’ capital rules 

implementing Basel III, banks include in their risk-weighted assets the 

amount of MSRs adjusted for deductions from CET1. At most this 

amount is equal to 10 percent of CET1. We note that this assumption 

leads us to underestimate counterfactual risk-weighted assets 

because the amount of MSRs adjusted for deductions from CET1 and 

thus added to risk-weighted assets may be equal to less than 10 

percent of CET1. We made this assumption because we cannot 

calculate exactly how risk-weighted assets would change with 

available data.

Our analysis has limitations and should be interpreted with caution. In 

particular, the new risk-based capital requirements are not fully phasedin, and banks may not have fully adjusted to them. As a result, current 

trends may not be indicative of the extent to which banks will be affected 

by the new risk-based capital requirements in the future. We assessed 

the data we used for this analysis by reviewing relevant documentation 

and by electronically testing the variables for missing values, invalid 

values, and outliers. We determined that the data were sufficiently reliable 

for the purpose of estimating the potential effects on banks of the capital 

treatment of MSRs under the prudential regulators’ capital rules 

implementing Basel III.

To determine community banks’ and credit unions’ participation in sales 

or purchases of MSRs in the secondary market, we analyzed data on 

transfers of mortgage servicing rights obtained from Fannie Mae, Freddie 

Mac, and Ginnie Mae for the period from 2010 through the second 

quarter of 2015. We used these data to determine the amount of MSRs 

(unpaid principal balance) associated with mortgage pools which were 

sold via bulk sales by banks, credit unions, and nonbank entities. We also 

determined the percentage of transfers between entity types such as 

bank to bank and bank to nonbank transactions, and dollar volume of 

these transfers. Additionally, we calculated the number of loans 

associated with transfers by year. We assessed the reliability of these 

data for this purpose by electronically testing the variables for missing 
Appendix I: Objectives, Scope, and 

Methodology

Page 52 GAO-16-448 Mortgage Servicing

values, invalid values, and outliers. We determined the data to be 

sufficiently reliable for the purpose of determining community banks’ and 

credit unions’ participation in sales or purchases of MSRs.

To determine the process regulators used to estimate the impact of 

regulations addressing mortgage servicing requirements and the riskbased capital treatment of MSRs, we reviewed the final and proposed 

rules to understand the results of regulators’ estimates of the rules’

impacts. We also reviewed other agency documentation, including 

CFPB’s report summarizing the results of a small business review panel. 

We also interviewed CFPB officials and banking regulators to understand 

their approaches for estimating the impact of the regulations before the 

final rules were issued.

To examine the extent to which CFPB and banking regulators have plans 

in place to monitor and assess the effects of new rules related to 

mortgage servicing or MSRs, we identified and reviewed requirements 

and guidance relating to agencies’ efforts to monitor and assess 

regulations (criteria). We also identified and reviewed Office of 

Management and Budget memorandums and related Executive Orders 

related to agencies’ efforts to conduct retrospective reviews. To evaluate 

CFPB’s approach toward these retrospective reviews, we also reviewed 

provisions of the Dodd-Frank Act that require CFPB to assess its 

significant rules and CFPB’s planning documents for conducting these 

assessments. In addition, to evaluate banking regulators’ approach 

toward the assessment of the regulatory capital rules that include 

changes to MSRs, we reviewed requirements contained in the Economic 

Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA) for 

reviewing existing rules, as well as requirements contained in the 

Consolidated Appropriations Act, 2016 for banking regulators to study the 

impact of changes to the capital treatment of MSRs. We also interviewed 

officials from CFPB and banking regulators about their plans for 

retrospective reviews. Additionally, we reviewed prior GAO work that 

addresses important characteristics for conducting high-quality reviews of 

regulations’ impacts.

To address all the objectives, we conducted semistructured interviews 

with federal regulators, including officials from the Board of Governors of 

the Federal Reserve System (Federal Reserve), CFPB, Federal Deposit 

Insurance Corporation (FDIC), Office of the Comptroller of the Currency, 

National Credit Union Administration (NCUA), and officials from industry 

associations selected for their affiliation with community banks or credit 

unions, including American Bankers Association (ABA), Independent 
Appendix I: Objectives, Scope, and 

Methodology

Page 53 GAO-16-448 Mortgage Servicing

Community Bankers of America (ICBA), Credit Union National 

Association (CUNA), National Association of Federal Credit Unions, and 

academics and other industry participants such as mortgage brokers and 

a rating agency selected based on our literature review. We also 

interviewed representatives from three credit union service organizations 

and two consumer groups—the Center for Responsible Lending and the 

National Consumer Law Center.2 We also interviewed representatives 

from Fannie Mae and Freddie Mac; Ginnie Mae; and the Federal Housing 

Administration and the Department of Veterans Affairs, which insures or 

guarantees, respectively, loans in Ginnie Mae-guaranteed mortgagebacked securities (MBS).

We interviewed community lenders of a range of sizes and different levels 

of experience with respect to mortgage servicing and MSRs. Our 

selection factors were based on available data in the Consolidated 

Reports of Condition and Income (commonly referred to as Call Reports) 

and the Credit Union 5300 Call Reports. For example, for credit unions 

we used the number of mortgage loans as an indicator of size because 

CFPB’s mortgage servicing rules include an exemption from some rules 

for small servicers. The term “small servicer” generally applies to 

institutions that service 5,000 mortgages or fewer. For community banks, 

we used asset size as our measure of size for the community banks 

rather than loan count because bank Call Reports do not track the 

number of loans.3

For our core sample of community lenders, we interviewed 

representatives from a total of eight community banks and six credit 

unions. However, we also interviewed a few additional community lenders 

for additional perspective for a total of nine community banks and seven 

credit unions. Although no commonly accepted definition of a community 

 2

Credit union service organizations are entities that are owned by federally chartered or 

federally insured state-chartered credit unions and that are engaged primarily in providing 

products or services to credit unions or credit union members. See 12 C.F.R. § 712.1(d). 

3

We used the Federal Deposit Insurance Corporation’s definition of a community bank, 

which incorporates an asset size threshold—generally including banks with less than $1 

billion in assets—and other characteristics. The asset size threshold is not a strict 

requirement. Larger banks may be considered community banks if they meet other criteria 

such as having a loan-to-asset ratio greater than 33 percent. See Federal Deposit 

Insurance Corporation, FDIC’s Community Banking Study.
Appendix I: Objectives, Scope, and 

Methodology

Page 54 GAO-16-448 Mortgage Servicing

bank exists, the term often is associated with smaller banks that provide 

relationship banking services to the local community and have 

management and board members who reside in the local community. 

While most credit unions are relatively small, we focused our interview 

selections on larger credit unions as additional servicing requirements 

apply to institutions with more than 5,000 loans. We also sought to gain 

perspectives from a credit union that may be approaching the 5,000 loan 

threshold. In addition to size, we included as a selection factor whether 

institutions had MSRs, including some institutions that had MSRs and 

some that did not (see table 1). Finally, separate from our core sample of 

interviews, we interviewed one community bank and one credit union as 

we developed the methodology and discussion questions for our interview 

sample. We selected these banks based on referrals from trade 

associations. For additional context, we also interviewed one regional 

bank with a large concentration of MSRs. Based on our small judgmental 

sample of community lenders, the responses are not generalizable to the 

population of community lenders.

Table 3: Number of Community Banks and Credit Unions Interviewed, by Size

Number of 

community banks

Description 

of size

Number of credit 

unions

Description 

of size

Small 2 Less than $100 million in assets 1 11 to 500 mortgage loans

Medium 4 $100 million to $1 billion in assets 3 501-500 mortgage loans

Large 2

More than $1 billion in assets

2 More than 5000 mortgage 

loans

Total 8 6

Source: GAO analysis of Call Report information. | GAO-16-448

We also completed a literature search and reviewed recent reports and 

articles related to the mortgage servicing industry, including industry and 

academic reports. We identified some literature recommended to us by 

the institutions we interviewed. In particular, to assess the impact of 

mortgage-related requirements and mortgage servicing rules issued 

pursuant to the Dodd-Frank Act, we reviewed an industry survey of a 

nonprobability sample of banks on the regulatory impact of Dodd-Frank 
Appendix I: Objectives, Scope, and 

Methodology

Page 55 GAO-16-448 Mortgage Servicing

Act regulations on banks in 2015.4 Since the survey relied on a 

nonprobability sample, the results cannot be used to make 

generalizations to the population of community lenders or commercial 

banks and thrifts. We reviewed the methodologies used in the study and 

determined that they were reasonable for analyzing the issues raised but 

note that the study has limitations and is not necessarily definitive.

We conducted this performance audit from April 2015 to June 2016 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our finding and 

conclusions based on our audit objectives.

 4

The American Banking Association’s 22nd Real Estate Lending Survey had the 

participation of 182 banks. The data were collected from March 4, 2015, to April 17, 2015, 

and in most cases reports calendar year or year-end results. In other cases, data reflect 

current activities and expectations at the time of data collection. Of the survey participants, 

68 percent of respondents were commercial banks and 32 percent were savings 

institutions. About 77 percent of the participating institutions had assets of less than $1 

billion. The survey was sent out as a web survey to over 3,000 banks including both 

American Bankers Association member and nonmember banks (commercial banks and 

thrifts) and elicited responses from 182 banks for a response rate of 6 percent overall. 

Since the survey relies on a non-probability sample, the results cannot be used to make 

inferences about all commercial banks and thrifts. 
Appendix II: Mortgage Servicing Rights 

Transfer Activity

Page 56 GAO-16-448 Mortgage Servicing

This appendix provides additional information about mortgage servicing 

rights (MSR) transfers. We analyzed data on MSR transfers from Freddie 

Mac and Ginnie Mae to determine the volume of transfers by type and 

size of institutions.1 Table 1 shows the volume of MSR transfers by 

different types of institutions.

Table 4: Percentage of Residential Mortgage Transfers of Servicing Approved by 

Freddie Mac or Ginnie Mae by Institution Type, 2010 through 2015 

Institution type (seller-tobuyer)a

Percentage of MSRs 

transferred based on 

unpaid principal balance, 

2010–2012

Percentage of MSRs 

transferred based on 

unpaid principal balance, 

2013–2015b

Bank-to-bank 26.8 9.0

Bank-to-nonbank 33.5 47.7

Nonbank-to-bank 13.4 7.1

Nonbank-to-nonbank 25.0 36.4

Total 100 100

Source: GAO analysis of Freddie Mac and Ginnie Mae data. | GAO-16-448

Note: Totals may not sum to 100 percent due to rounding.

a

Bank refers to any insured depository institution (e.g., bank, credit union, thrift). Nonbanks could 

potentially be owned by a bank even if they are not an insured depository themselves.

b

Period is from January 2013 to June 2015, which was the most recent data available.

Table 2 shows additional information about the net MSR transfers by 

banks of different sizes and nonbanks. In the 2010 to 2012 period, 

nonbanks and multiple categories of small banks were net purchasers of 

MSRs approved by Freddie Mac and Ginnie Mae, while the largest banks 

sold more MSRs than they purchased. In the 2013 to 2015 period, banks 

in each of the four size categories were net sellers of MSRs, while 

nonbanks were net purchasers.

 1

Data provided by Fannie Mae did not allow GAO to perform a comparable analysis to 

Freddie Mac and Ginnie Mae. 

Appendix II: Mortgage Servicing Rights 

Transfer Activity
Appendix II: Mortgage Servicing Rights 

Transfer Activity

Page 57 GAO-16-448 Mortgage Servicing

Table 5: Net Transfers of Mortgage Servicing Rights Approved by Freddie Mac or 

Ginnie Mae by Institution Type and Size (in billions of dollars of unpaid principal 

balance), 2010 through 2015

Institution type and sizea Net transfers 

2010–2012

Net transfers 

2013–2015b

Banks with less than $1 billion in assets 1 -2

Banks with $1 billion and up to $10 

billion in assets

11 -77

Banks with more than $10 billion and up 

to $50 billion in assets

-4 -10

Banks with more than $50 billion in 

assets

-35 -146

All nonbanks 34 236

Source: GAO analysis of Freddie Mac and Ginnie Mae data. | GAO-16-448

Note: The negative amounts indicate that the unpaid principal balance on outstanding loans for which 

mortgage servicing rights (MSR) were transferred exceeded the unpaid principal balance on 

outstanding loans for which MSRs were purchased. Data provided by Fannie Mae did not allow GAO 

to perform a comparable analysis to Freddie Mac and Ginne Mae data. Net transfers for all institution 

types do not equal zero because institution size could not be determined for some buyers or sellers, 

and these transactions are not included in the table.

a

Bank refers to any insured depository institution (e.g., bank, credit union, thrift). We did not 

categorize nonbanks by size. Nonbanks could potentially be owned by a bank even if they are not an 

insured depository themselves.

b

Period is from January 2013 to June 2015, which were the most recent data available.
Appendix III: Comments from the Bureau of 

Consumer Financial Protection

Page 58 GAO-16-448 Mortgage Servicing

Appendix III: Comments from the Bureau of 

Consumer Financial Protection
Appendix III: Comments from the Bureau of 

Consumer Financial Protection

Page 59 GAO-16-448 Mortgage Servicing
Appendix III: Comments from the Bureau of 

Consumer Financial Protection

Page 60 GAO-16-448 Mortgage Servicing
Appendix IV: Comments from the National 

Credit Union Administration

Page 61 GAO-16-448 Mortgage Servicing

Appendix IV: Comments from the National 

Credit Union Administration
Appendix V: GAO Contact and Staff 

Acknowledgments

Page 62 GAO-16-448 Mortgage Servicing

Mathew J. Sciré (202) 512-8678 or sciremj@gao.gov

In addition to the contact named above, Jill M. Naamane (Assistant 

Director), Janet Fong (Analyst-in-Charge), Farah B. Angersola, Bethany 

M. Benitez, Emily R. Chalmers, Pamela R. Davidson, Janet C. Eackloff, 

Kendra R. Froshman, Justin P. Gordinas, Cynthia L. Grant, Courtney L. 

LaFountain, Marc W. Molino, Steve Robblee, Jennifer W. Schwartz and 

James D. Vitarello made key contributions to this report.

Appendix V: GAO Contact and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments

(250818)
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