3 THE GROWTH IN AGENCY SECURITIZATION AND NONBANK MORTGAGE COMPANIES | 15
FSOC Report on Nonbank Mortgage Servicing
3.2 Increased NMC Presence in the Mortgage Market
e bank share of mortgage origination and servicing rose substantially at the beginning of the 2007-
09 nancial crisis after many NMCs failed amid a sharp rise in delinquencies and unemployment,
decline in house prices, and collapse of the subprime and Alternative-A securitization market.
Altogether, the total number of NMCs (both independent and bank-aliated) fell by half—a drop
of nearly 1,000 companies—between 2006 and 2012.
25
Some very large NMCs failed, such as New
Century Financial and American Home Mortgage, which received nearly 450,000 and 350,000
mortgage applications, respectively, in 2006.
26
e origination and servicing businesses of New
Century Financial and American Home Mortgage included signicant exposure to mortgages that
were not eligible for Agency securitization.
27
While many of the factors that contributed to NMC failures during the 2007-09 nancial crisis are
signicantly dierent or nonexistent today, it is worth examining similarities in vulnerabilities
given the large market share and reliance on NMCs in today’s market. e NMCs from the pre-
nancial crisis period originated and serviced many subprime and near-prime mortgages that
were poorly underwritten and had opaque and confusing features such as teaser interest rates and
negative amortization.
28
State and federal regulations since the 2007-09 crisis have dramatically
25 Bhutta, Neil, and Glenn B. Canner. 2013. “Mortgage Market Conditions and Borrower Outcomes: Evidence from the
2012 HMDA Data and Matched HMDA–Credit Record Data.” Federal Reserve Bulletin 99, no. 4 (November). https://
www.federalreserve.gov/pubs/bulletin/2013/pdf/2012_hmda.pdf.
26 Applications for 2006 can be found at https://www.federalreserve.gov/pubs/bulletin/2008/pdf/hmda07tableA1.xls.
27 See these companies’ SEC lings, available for American Home Mortgage at https://www.sec.gov/Archives/edgar/
data/1256536/000119312507044477/d10k.htm and for New Century Financial at https://www.sec.gov/Archives/
edgar/data/1287286/000089256906001359/a24944e10vq.htm.
28 For a discussion of the deterioration in underwriting standards, see Mayer, Christopher, Karen Pence, and Shane M.
Sherlund. 2009. “e Rise in Mortgage Defaults,” Journal of Economic Perspectives, 23, no. 1 (Winter): 27-50. See the
Housing Credit Availability Index in Urban Institute Housing Finance Policy Center. “Housing Finance at a Glance:
A Monthly Chartbook.” Washington, D.C.: Urban Institute, March 2024. https://www.urban.org/sites/default/
les/2024-03/Housing_Finance_At_A_Glance_Monthly_Chartbook_March_2024.pdf, for a measure of the role of
product risk in mortgage default risk before the 2007-09 nancial crisis.
On net, the share of outstanding mortgages funded by Agency securitization rose from 46 percent in
1990 to 68 percent in 2023 (see Figure 2).
22
is upward trend was interrupted in the 2000s as the
emergence of subprime and near-prime mortgage products led to a surge in the private-label
securitization (PLS) market. After the PLS market imploded in 2007, the Agency share expanded
again, led initially by a sharp rise in Ginnie Mae guaranteed securitizations as the FHA, VA, and RHS
programs absorbed some of the origination activity that was funded earlier through PLS (see Figure
3).
23
Increases in the maximum loan size eligible for FHA insurance and VA guarantees also
contributed to the growth.
24
22 Data are from the Financial Accounts of the United States, Table L.218. Data are for residential mortgages
collateralized by one-to-four family properties. Home equity loans are excluded from the calculation. Credit unions
are included in the depository category. Data for the Ginnie Mae component of Agency and MBS pools in the Flow
of Funds Account can be found at https://www.ginniemae.gov/data_and_reports/reporting/Pages/monthly_rpb_
reports.aspx.
23
See Adelino, Manuel, William B. McCartney, and Antionette Schoar. “e Role of Government and Private Institutions
in Credit Cycles in the U.S. Mortgage Market.” Working Paper no. 27499. NBER, July 2020. https://www.nber.org/
papers/w27499 for more discussion of this switch.
24 For more information on the increases in the maximum loan amount eligible for FHA insurance, see Park, Kevin A.,
“Temporary Loan Limits as a Natural Experiment in FHA Insurance,” Working Paper no. HF-021, Washington, D.C.:
HUD Oce of Policy Development and Research, May 2016. https://www.huduser.gov/portal/sites/default/les/
pdf/WhitePaper-FHA-Loan-Limits.pdf. See also Veterans Benets Administration. “Updated Guidance for Blue Water
Navy Vietnam Veterans Act of 2019.” Circular 26-19-30, Washington, D.C.: Department of Veterans Aairs, November
15, 2019. https://www.benets.va.gov/HOMELOANS/documents/circulars/26_19_30.pdf for increases in the
maximum amount of VA guaranty entitlement resulting from the Blue Water Navy Vietnam Veterans Act of 2019.
Note: One-to-four family residential mortgages excluding home equity loans. Credit unions
are included in the depository category.
Source: Financial Accounts of the United States
Figure 2: Outstanding Mortgage Balances by Sector
Source: Federal Financial Institutions Examination Council (U.S.), Home Mortgage
Disclosure Act (Public Data)
Figure 3: Loan Origination by Credit Guarantor