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Rules enacted last year appear to be steadily forcing banks to exit the mortgage servicing business, transferring such rights to nonbanks. The situation is stoking fears on Capitol Hill and elsewhere that regulators went too far.
March 3 -
Much has been made of how Basel III requirements have dulled banks' appetite for mortgage servicing rights, but a handful of institutions are buying within regulatory limits.
May 28 -
Recently raised regulatory concerns about the massive transfer of mortgage servicing rights from banks to nonbanks are fueling industry hopes that policymakers may be open to addressing the issue.
May 21
WASHINGTON The House Financial Services Committee passed a slew of bills on Wednesday, including one designed to ease capital requirements on mortgage servicing assets held by small institutions.
The legislation, sponsored by Rep. Blaine Luetkemeyer, R-Mo., won substantial bipartisan support, passing the panel by a vote of 44 to 9. It would delay implementation of a provision of Basel III capital rules that establishes higher requirements on MSRs.
The delay would only apply to institutions with less than $50 billion of assets, or those not considered systemically important under the Dodd-Frank Act.
"We are chasing mortgage servicing out of our community banks," said Financial Services Committee Chairman Jeb Hensarling, R-Texas, during debate on the bill on Tuesday.
The legislation would give the regulators six months to complete a study on the "appropriate capital requirements" for MSRs, and require them to implement new capital requirements within three months after that stage.
At issue is a provision in the Basel package of rules finalized a year ago that limits 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 eventually be risk-weighted at 250%, while combined holdings of mortgage servicing and several other assets could not exceed 15%.
Community banks and credit union representatives have argued that the new rules are far too harsh, forcing them to sell MSRs.
During the vote, Rep. Maxine Waters, D-Calif., agreed with the intent of the bill, but said it should be limited to institutions with less than $10 billion of assets.
"We need to talk about community bank size and how to define that," Rep. Waters said.
The California Democrat indicated she was willing to compromise and seek a higher limit, while Republican lawmakers indicated they would work with her further on the issue.
Rep. Michael Capuano, D-Mass., said striking an agreement on that issue could help the bill have momentum in the Senate.
"If you want to pass a bill that actually helps our constituents, here is an opportunity to reach out to find common ground," he said.
Democrat and Republican members hope to reach agreement on the asset limit before the bill goes to the House floor for a vote.
Separately, the committee also approved several other measures on a range of subjects, including the Federal Reserve Board's monetary policy decisions and the Volcker Rule.
The panel approved by voice vote a bill by Rep. Robert Pittenger R-N.C., and Rep. Carolyn Maloney, D-N.Y., that would require the Government Accountability Office to study Fed reserve requirements for member banks and credit unions.
It also approved 31-23 another measure by Luetkemeyer that would allow community banks to make residential mortgage loans of $250,000 or less without an appraisal, provided the bank holds the loan in portfolio for three years.
Speaking in support of the bill, Reps. Randy Neugebauer, R-Texas, and Shelley Moore Capito, R-W.Va., stressed that many rural areas don't have local appraisers and criticized added appraisal requirements enacted by Dodd-Frank.
The panel also approved legislation 32-26 authored by Reps. Bill Huizenga, R-Mich., and Scott Garrett, R-N.J., that would require the Federal Open Market Committee to report any policy changes that affect interest rates to Congress within 2 days. The bill would require the Fed chairman to report quarterly, instead of semi-annually, to Congress on monetary policy activities and mandate that the central bank assess the costs and benefits of its regulations.
"The Fed has become a super regulator under the Dodd-Frank Act," Huizenga said.
A separate bill sponsored Rep. Sean Duffy, R-Wis., would require the Fed to conduct a cost-benefit analysis before making any changes to the Volcker Rule, which restricts proprietary trading by banks.
The legislation, which passed 32-22, was opposed by many Democrats, who said it tied regulators' hands.
"This bill will delay any future changes," said Waters. It is a "trick" to keep "the regulators from doing their job."
The committee also approved a five-year reauthorization of the Native American Housing Assistance and Self Determination Act by a 47-11 vote. The bill sponsored by Rep. Steve Pearce, R-N.M., would include a demonstration project that allows private firms to do joint ventures on reservations to increase the supply of housing.
