The treatment of single-family loans under the Basel III capital proposal might drive community banks out of the mortgage market and “threaten the existence of the thrift model,” according to the Risk Management Association.
In a comment letter to federal banking regulators, the RMA Community Bank Council notes that the
In addition, the proposed capital rule does not recognize private mortgage insurance in calculating a bank’s capital requirements on high LTV loans.
“The council submits that the standardized approach should be revised to recognize the use PMI,” the RMA Community Bank Council says in the Sept. 28 comment letter.
The council also suggests that it would be appropriate for federal regulators to work with lenders and insurers to “establish sound underwriting guidelines” for the issuance of private mortgage insurance.
MI firms would have to adhere to the new guidelines, according to the comment letter.
“As a threshold matter,” the RMA council maintains that the Basel III capital rules were intended for large international banks—not community banks. “For that reason alone, the council respectfully suggests that the Basel III rulemaking exclude from coverage banks under $10 billion in total assets,” the RMA letter says.
The comment period on the Basel III rulemaking ends Oct. 22.
