Mortgage Servicing: Community Lenders Remain Active under New Rules, but CFPB Needs More Complete Plans for Reviewing Rules
Published: 2016-06-23T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: 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.
section_title: What GAO Found
paragraphs: 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 customer-focused 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.
section_title: What GAO Recommends
paragraphs: 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.

section_title: Letter
paragraphs: 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. 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 Dodd- Frank 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. 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  regulation. 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.
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. 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 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 risk- based 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  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.
subsections: section_title: Background
subsections: section_title: Types of Mortgage Servicers and Federal Regulators
paragraphs: Various institutions, including banks, credit unions, nonbank entities, and  subservicers, service mortgage loans. These institutions are defined as  follows:
Banks. Institutions of various types that may be chartered under  federal or state law. 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  management and board members who reside in the local community.  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-union- regulating NCUA, oversee depository institutions for safety and  soundness purposes and for compliance with other laws and regulations  that fall within the scope of the relevant prudential regulator’s authority  (see table 1).
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. 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  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.
section_title: Mortgage Servicing Market
paragraphs: In the primary market, lenders make, or originate, mortgage loans that are  secured by property or real estate. 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  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.
section_title: Recent Changes to Selected Mortgage Regulations and Regulatory Capital Requirements for MSRs
paragraphs: Mortgage Origination Rules. CFPB issued new rules related to  underwriting of mortgage loans that became effective in January 2014.  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.
Mortgage Servicing Rules. CFPB issued mortgage-servicing-related  rules covering nine major topics that became effective January 10,  2014. 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  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. 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.
CFPB included a small servicer exemption from certain parts of the  mortgage servicing rules. 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. 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  strengthen banks’ transparency and disclosures. 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.
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.
In October 2015, NCUA also issued risk-based capital regulations.  However, unlike the banking regulators, which applied the MSR  provisions to all supervised banks, NCUA exempted credit unions with  $100 million or less in assets from its risk-based capital regulations.  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. NCUA’s risk-based capital rules will take effect  on January 1, 2019.
section_title: Rule Development and Retrospective Review Processes
paragraphs: 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. 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. 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  impacts of the proposed rule prior to publishing the required initial  regulatory flexibility analysis.
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. 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. The report from the  first EGRPRA review was submitted to Congress in 2007 and the second  review is underway. 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.
section_title: Community Lenders Continue to Service Mortgages as Regulatory Requirements Increase
paragraphs: 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 mortgage- related rules required under the Dodd-Frank Act, they made adjustments  to certain business practices.
subsections: section_title: The Share of Mortgages Serviced by Community Lenders Has Increased Since 2008
paragraphs: 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.
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. 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  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.  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.
section_title: Many Community Lenders Reported Spending More in Response to Regulatory Requirements and Some Adjusted Business Activities, Potentially Affecting Customers
paragraphs: 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 mortgage- related requirements resulting from new rules instituted pursuant to the  Dodd-Frank Act. 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. 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  costs. In addition, nearly 70 percent cited increased costs for third-party  vendor services.
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. 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  and income even though the customer did not meet the specific debt-to- income ratio required under CFPB’s rule.
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. Representatives at another community bank said it no longer  offered bridge loans—short-term loans typically used when a consumer is  buying a new home before selling the consumer’s existing home—to its  customers.
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. 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. 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  borrowers who typically prefer to communicate with the mortgage loan  officer because they have a pre-existing relationship.
section_title: Community Lenders Are Continuing Residential Mortgage Lending and Have Not Changed Their Customer-Focused Business Model
paragraphs: 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). 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. 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.
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  balance sheets. 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. 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.
section_title: New Capital Treatment of Mortgage Servicing Rights Likely Will Not Affect Many Community Banks and Credit Unions
paragraphs: 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.
subsections: section_title: Most Community Banks and Credit Unions Hold Limited MSRs and Have Sufficient Capital to Cover Them
paragraphs: 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. 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).  Some banks may have to increase CET1 capital to ensure that their ratios  of CET1 capital to risk-weighted assets remain above the required  minimum. 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.
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).
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  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.
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).
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.
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  and assigns a 250 percent risk-weight to MSRs. 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 risk- based 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. 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. 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  need to raise capital may cover their increased funding costs by raising  loan rates, shifting lending activity to lower-risk borrowers, and increasing  efficiency.
section_title: Community Lenders Are Likely to Remain Minor Participants in MSR Sales, Which Can Be Influenced by Several Factors
paragraphs: 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. 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. 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  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. 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  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. 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.  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  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.
section_title: Regulators Estimated Impacts of New Rules Using Public Input and Data Analysis, but CFPB’s Plans for Reviewing Rules Have Limitations
paragraphs: 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.
subsections: section_title: CFPB Used Multiple Methods to Obtain Public Comments and Estimate Impact Prior to Issuing Final Mortgage Servicing Rules
paragraphs: 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. 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  CFPB to propose exempting smaller servicers from certain mortgage- servicing 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.  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. 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.
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,  such as providing a written description of loss-mitigation options within 45  days of a borrower’s delinquency.
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. CFPB also considered the potential costs and  benefits for consumers and all banks and credit unions, as required by  the Dodd-Frank Act. 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. 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  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.  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.
section_title: Banking Regulators Included Changes in the Treatment of MSRs in Their Impact Estimates Prior to Issuing New Regulatory Capital Rules
paragraphs: 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. 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. 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. 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  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. 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. 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.
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  percent of small banks it supervised. 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.
section_title: CFPB’s Plans for Conducting Retrospective Reviews of the Mortgage Servicing Rules Are Incomplete, and Banking Regulators’ Reviews of Capital Rules Are Ongoing
paragraphs: 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. 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  published. 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. 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. 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. 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  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.  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.
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. 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  separate outreach sessions at various locations across the United States  that allow the public to provide input during panel discussions. 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. 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. However, we  found that the mandatory EGRPRA process was an exception, with the  first EGRPRA cycle ending in 2006 generating at least four regulatory  changes and more than 180 legislative proposals for regulatory relief.
section_title: Conclusions
paragraphs: 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.
section_title: Recommendation for Executive Action
paragraphs: 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.
section_title: Agency Comments and Our Evaluation
paragraphs: 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  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.
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.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: 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  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. 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  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.
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 mortgage-  related 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 risk- weighted 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 MSR- related 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  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, risk- weighted 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 phased- in, 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  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 risk- based 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  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. 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 mortgage- backed 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.
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  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.
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  Act regulations on banks in 2015. 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.
section_title: Appendix II: Mortgage Servicing Rights Transfer Activity
paragraphs: 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. Table 1 shows the volume of MSR transfers by  different types of institutions.
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.
section_title: Appendix III: Comments from the Bureau of Consumer Financial Protection
section_title: Appendix IV: Comments from the National Credit Union Administration
section_title: Appendix V: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: 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.