The Rise of Non-Banks in Servicing Household Debt

54 Pages Posted: 27 Aug 2023

See all articles by Naser Hamdi

Naser Hamdi

Equifax, Inc.

Erica Xuewei Jiang

University of Southern California

Brittany Almquist Lewis

Washington University St. Louis - Olin Business School

Manisha Padi

University of California, Berkeley - School of Law

Avantika Pal

Washington University in St. Louis - John M. Olin Business School

Date Written: March 22, 2023

Abstract

Over the past two decades, the mortgage industry has been transformed from the traditional bank-centered deposit taking, lending, and servicing model to a fragmented market with high non-bank participation. We document a novel mechanism for this unbundling - mortgage servicing transfers - and study the role of bank regulation in transforming servicing. Using a near universe of consumer credit records, we show that banks increase transfers of mortgage servicing rights (MSRs) to non-banks following the announcement of Basel III's higher regulatory costs of holding MSR assets for banks. Based on predictions of a simple model of servicing transfers, we demonstrate which types of banks and loans experience the highest transfer rates. We find that banks selectively transferred below-median income, subprime, and 60+ day delinquent MSRs to non-banks. Loans subject to transfer due to regulatory pressure experienced more foreclosures and personal bankruptcies. Our results suggest that growth in the unbundling of mortgage servicing increased existing disparities in financial risks across households.

Keywords: Non-Banks, Mortgage Servicing Rights, Basel III

JEL Classification: G20, G21, G23

Suggested Citation

Hamdi, Naser and Jiang, Erica Xuewei and Lewis, Brittany and Padi, Manisha and Pal, Avantika, The Rise of Non-Banks in Servicing Household Debt (March 22, 2023). Olin Business School Center for Finance & Accounting Research Paper No. Forthcoming, Available at SSRN: https://ssrn.com/abstract=4550175 or http://dx.doi.org/10.2139/ssrn.4550175

Naser Hamdi

Equifax, Inc. ( email )

Atlanta, GA
United States

Erica Xuewei Jiang

University of Southern California ( email )

701 Exposition Blvd, HOH 431
Los Angeles, CA California 90089-1424
United States

Brittany Lewis (Contact Author)

Washington University St. Louis - Olin Business School ( email )

1 Brookings Drive
MSC 1133-124-242
St. Louis, MO MO 63105
United States

HOME PAGE: http://www.brittanylewis.org

Manisha Padi

University of California, Berkeley - School of Law ( email )

215 Boalt Hall
Berkeley, CA 94720-7200
United States

Avantika Pal

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

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