"FSOC is very focused on that because nonbank mortgage companies lack access to deposits, which banks have," Yellen said at the Senate Banking Committee Thursday, referring to the Financial Stability Oversight Council. FSOC groups the main US financial regulators. 

Nonbanks have become a major presence in the mortgage market, but rely on short-term funding instruments to fund their operations. They also aren't allowed to access the Federal Reserve's emergency lending facility, known as the discount window.

"They're reliant on short-term financing that may be a lot less stable than deposits, and in stressful times, their credit lines can be pulled," said Yellen, responding to questions from Democratic Senator Catherine Cortez Masto of Nevada. "There is concern that in stressful market conditions we could see the failure of one of these."

Regulators have been warning that nonbanks' footprints across finance have significantly expanded, though oversight hasn't kept pace. Officials have said that unforeseen risks may be lurking as the firms have grabbed more market share, while their ties to traditional lenders have become more complex.

Fed oversight

In November, the FSOC laid out a pathway for placing firms other than banks under strict Federal Reserve oversight, a major regulatory threat to nonbank mortgage lenders, hedge funds and investment companies.