WASHINGTON — The House Financial Services Committee grilled Treasury Secretary Jack Lew on a wide range of issues Thursday, raising concerns about regulatory oversight of the mortgage servicing industry and transparency at the Financial Stability Oversight Council.

The hearing marked Lew's annual appearance before the committee to discuss the international finance system, which he used to urge the passage of proposed reforms to the International Monetary Fund, particularly in the wake of the continuing political crisis in Ukraine. But he also spent a significant amount of time discussing his work at the FSOC and touching on related financial industry developments. The hearing came the day after FSOC released its annual report on threats to the financial system.

Below are three key takeaways for bankers from Lew's appearance.

Problems in the mortgage servicing business are not a "burning crisis" but they are worth keeping an eye on

Lawmakers and regulators have been raising the alarm over the mortgage servicing industry lately amidst ongoing reports about illegal foreclosure practices in the wake of the financial crisis and growing sales of mortgage servicing rights from banks to nonbank servicers.

Rep. Maxine Waters asked Lew to elaborate on why the FSOC discussed concerns about the mortgage servicing industry in its annual report, while warning that non-banks are not subject to the same prudential standards as banks.

"On the issue of nonbank servicers, the report notes that market servicing rights are increasingly being transferred to these companies," she said. "While the CFPB servicing rules apply to these companies with regard to consumer protection, many of these companies are not subject to prudential standards, such as capital, liquidity, or risk management."

Lew said the Oversight Council is continuing to examine the issue of banks transferring their servicing rights to non-banks, downplaying it as less of an immediate, critical threat and more as something to continue watching.

"We didn't put it in the report because we think that it is today a burning crisis," he added. "We put it in because the job of FSOC is to look ahead at what are the problems that could emerge. And this is one of the areas which we think warrants additional attention."

Republicans are still frustrated about closed-door operations at the FSOC

Lew also defended against ongoing attacks from GOP lawmakers about the FSOC's operations, which some Republicans argue aren't transparent enough. They frequently cited the council's designations last year of several nonbank institutions as systemically important, arguing those decisions lacked sufficient oversight.

The complaints followed efforts by the FSOC on Wednesday to improve its efforts at transparency. The group defended its right to hold closed-door meetings and keep certain data confidential in a two-page statement, but also said it would work to provide more information to the public about those meetings when possible.

"There is increasing, again, bipartisan concern about the immense discretionary power that FSOC has, and how frankly little transparency it has, notwithstanding the actions taken yesterday," said Rep. Jeb Hensarling, R-Texas, chairman of the banking panel.

He added that the FSOC still has "incredible ability to take these nonbank institutions and effectively put them into a bailout position, with very little transparency, with very little indication of the methodology used by which to make these decisions and adjudications."

The Texas Republican added that the committee is working to schedule another hearing with Lew later this month on the issue of nonbank designations. The FSOC identified three companies last summer — American International Group, GE Capital and Prudential Financial — as systemically important.

Congress needs to act fast to extend TRIA

Lew also urged Congress to reauthorize the Terrorism Risk Insurance Act, warning that failure to do so could disrupt financial markets. The terrorism insurance program, established after the 9/11 attacks, provides a government backstop for insurers and reinsurers in the case of a major terrorist strike. It will expire at the end of the year absent congressional action.

"We strongly support the reauthorization of TRIA. And we think the sooner, the better. The market has changed since the 2001 when the attack on the World Trade Center gave rise to the need for a program like this. But it hasn't completely healed," Lew said. "And I think it's a real problem if there's not an extension of TRIA."

While it is still expected that Congress will eventually renew the law before the program expires, a key question remains whether lawmakers can agree on changes. Some lawmakers, including many Republicans, want to see it move toward more private sector responsibility, such as raising how much the industry would be responsible for paying after an attack as well as the threshold for when the program would kick in.

Currently, private insurers would pay a deductible set at 20% of their annual premiums. After that point, the government would pay 85% of losses. The program begins providing coverage when losses exceed $100 million.

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