MBA Statement on the Banking Agencies’ Basel III Endgame Re-proposal
MBA’s President and CEO Bob Broeksmit, CMB, released the following statement on the notice of proposed rulemaking (NPR) issued jointly by the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), and the Federal Reserve:
“The federal banking agencies’ updated Basel III proposal represents a pivotal step toward a more balanced and risk-aligned approach to capital standards affecting mortgage lending and commercial real estate finance.
“Capital rules are notoriously complex, but based on our initial review, the re-proposal incorporates several priorities long advocated by MBA, including more risk-sensitive capital requirements using loan-to-value ratios and the opportunity to consider the recognition of credit enhancements such as private mortgage insurance. It also takes important steps to reduce the punitive treatment of mortgage servicing rights and commercial real estate loans.
“MBA will review the proposal closely and looks forward to engaging in the formal comment process, including on key technical elements such as the appropriate capital treatment of mortgage servicing assets and the broader application of these reforms across the banking system. We stand ready to work with the agencies on a final framework that better supports sustainable mortgage origination and warehouse lending, robust servicing capacity, and continued access to affordable home financing offered by both depositories and independent mortgage banks.”
See the three-part proposal here, here and here.
Go deeper: The re-proposal reflects significant progress for MBA and its single-family and commercial real estate finance members after years of sustained advocacy for a better-calibrated capital framework for mortgage assets after the very flawed initial proposal was released in July 2023.
• MBA’s push for changes came in many forms over the past 2.5 years, including numerous comment letters, regulatory meetings, speeches, and President and CEO Bob Broeksmit’s, CMB, September 2023 testimony in front of the House Financial Services Subcommittee on Financial Institutions and Monetary Policy.
• Ahead of the March 19 re-proposal, MBA recently submitted a Statement for the Record supporting the re-proposal (and offering recommendations) ahead of a Senate Banking Committee hearing with the prudential bank regulators, led a broad joint trades letter with recommendations, and sent a letter urging the banking agencies to reduce risk weighting for warehouse lines.
• Overall, MBA has long emphasized that banks play a critical role in mortgage lending and servicing – both directly and through financing IMBs–as well as in the commercial real estate market, and that current capital rules limit their ability to fully participate in and support these markets.
Why it matters: The updated proposal includes several MBA-recommended changes that, if fully adopted, should create a more balanced framework that allows banks and IMBs to compete and serve borrowers more effectively, and help banks participate more fully in commercial real estate financing.
Specifically, the proposal:
• Reduces the punitive capital treatment of mortgage servicing rights by eliminating the cap on mortgage servicing assets (MSAs) in Tier 1 capital and seeking comment on the appropriate risk weight;
• Adopts more granular, LTV-based risk weights for loans held in portfolio;
• Preserves recognition of private mortgage insurance as a credit enhancement; and,
• Takes steps to reduce the punitive capital treatment of commercial real estate loans on banks’ balance sheets.
For more information and to participate in the Working Group that will meet to comment on this proposal, please contact Pete Mills at (202) 557-2878, Jamie Woodwell at (202) 557-2936, Fran Mordi at (202) 577-2860, and John Lammle at (202) 557-2789.
