The decision to delay the implementation date on Basel III capital rules could be a game changer for the residential mortgage servicing business–or maybe not.
According to interviews with advisors and analysts who are involved with the issue, the biggest question mark is whether Basel III is being killed outright. (Regulators aren’t saying.)
Tom Cronin, managing director of The Collingwood Group, noted, “A postponement alone doesn’t do much, other than give time for consideration. As written, the effects are very real re: bank participation in holding MSRs.”
Cronin adds, “This is important because, absent bank capital, who’s going to fill the void? If banks are forced to stop investing or reduce their investments in servicing, where is the capital to support housing finance going to come from?”
Over the past two years nonbanks, specialty servicers and REITs have gobbled up billions of dollars in MSRs at rock-bottom prices with banks shedding product because of coming regulatory caps that limit the asset to 10% of core capital.
Bank of America, in particular, has been active seller and has MSR packages in the market on a monthly basis.
But if Basel III is scuttled or the language radically changed regarding MSRs and capital, banks might have second thoughts about gobbling up market share.
One advisor told National Mortgage News that if Basel III is scrapped banks might begin offering a higher servicing-released premium on the MSRs it buys from correspondent originators.
Henry Coffey, an analyst at Stern Agee, believes a Basel delay “will mean very little since most banks have the capital needed to support MSRs if they so choose.”