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March 5, 2014

Are Regulators Driving Banks Out of Mortgage Servicing?

WASHINGTON —“Financial institutions are raising concerns anew about a set of regulations that they say are forcing banks out of the servicing business as they sell their rights to nonbanks.”

“Regulators finalized Basel III rules last summer that placed significant restrictions on banks’ ability to hold mortgage servicing rights, particularly for smaller institutions. As a result, the regulations are hastening banks’ exit from servicing and stoking fears that the agencies went too far.”

“We are calling on regulators to revisit this, because you want banks to service the loans they make to customers and you don’t want to drive servicing out of banks,” said Robert Davis, an executive vice president at the American Bankers Association. ‘You create a significant capital advantage for nonbank servicers … and you’re creating an environment that makes it harder for banks to hold servicing assets.’”

“At issue is a provision in the Basel package of rules that would limit mortgage servicing assets to 10% of a bank’s Tier 1 common equity, with additional holdings deducted from the Tier 1 capital account. Assets under the 10% cap would also eventually be risk-weighted at 250%. In addition, combined holdings of mortgage servicing and several other assets are limited to 15%.”

Read full American Banker article here.

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