MBA Recommends Improvements to Basel III Re-Proposal

The Mortgage Bankers Association June 18 submitted a comment letter to the Federal Reserve, Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency, recommending improvements to the Basel III re-proposal.

The letter provides a number of suggestions, including:

• Mortgage Servicing Assets (MSAs): Reduce the proposed 250% risk weight to no more than 100%, reflecting MSAs’ strong historical performance and lower realized losses.
• Warehouse Lending: Modify provisions that would increase capital requirements on unused portions of warehouse facilities and align capital treatment of funded warehouse lines with the risk profile of the underlying mortgage collateral.
• Residential Mortgages and Private Mortgage Insurance (PMI): Retain the proposed loan-to-value-based framework while providing greater recognition of PMI’s proven risk-mitigating benefits when determining capital requirements.
• Commercial Real Estate (CRE): Expand the use of a more granular, risk-sensitive CRE framework and lower the maximum risk weight for high-LTV CRE loans to ensure secured real estate lending is not treated more harshly than unsecured corporate exposures.
• Securitization: Revise the proposal to reduce unnecessary capital burdens on certain securitization exposures, including lowering risk weights for GSE-backed securities to recognize the federal backstop supporting those assets.

In general, it urges regulators to tailor the framework for the realities of the U.S. banking system. It builds on nearly three years of MBA engagement with regulators and policymakers on the issue.

Click here or read the full letter below.