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Mortgage companies could intensify the next recession, US officials warn

·1 min

US officials raise concerns that a future recession could be intensified by failures in the mortgage industry. The US Financial Stability Oversight Council (FSOC), a group of financial regulators, warns about the risks posed by nonbank mortgage companies. Unlike traditional banks, these companies are heavily exposed to swings in the mortgage market and rely on unstable funding. They also lack regulation at a national level. FSOC warns that these vulnerabilities could lead to a domino effect, with multiple mortgage companies collapsing and borrowers locked out of the mortgage market. Regulators call for action to address these risks, including creating an industry-funded backstop. Nonbank mortgage companies play a significant role in the US mortgage market, originating two-thirds of mortgages and owning the servicing rights on over half of mortgage balances.