The Mortgage Bankers Association Thursday asked banking regulators to scrap their Basel III proposal because—among other reasons—it would hurt lending and servicing markets as well as consumers.
In particular, the MBA says penalties on mortgage servicing rights above a 10% threshold “could result in a major market disruption as servicing is dispersed from large holders to other institutions that may or may not have the capacity to economically service mortgages.”
As reported by National Mortgage News, that transformation is already under way as large megaservices the likes of Bank of America and others unload their MSRs to nonbanks like
Basel III capital rules cap how much MSRs can count toward Tier I capital. Several large banks—Wells Fargo, B of A, JPMorgan Chase—have been writing down the asset value of their MSRs for well over a year.
In its 84-page letter to the Federal Reserve, FDIC and other agencies, the trade group says the proposal “will impact the mortgage market along several dimensions: Increased capital requirements will reduce overall lending relative to the existing standards. Increased risk-weights for mortgage loans, particularly for loans with certain specified characteristics or features, will concentrate bank mortgage holdings in loans without these characteristics and concentrate loans with such characteristics in other capital sources.”
Mortgage servicing rights would be risk-weighted 250% under the Basel III capital proposal and MSRs in excess of 10% of common equity in Tier I capital would have to be deducted from Tier I capital.
“MBA finds such treatment excessive and an overreaction to the recent crisis,” the comment letter says. It would force the “largest institutions to shed significant amounts of servicing,” the MBA says, and drive a large portion of MSRs to less regulated institutions.
“MBA believes that existing regulatory capital treatment of MSRs is appropriate, and the proposal’s limits on MSRs should not be adopted in the U.S.”
