Mortgage

Update: The Impact of Basel III on Mortgage Servicing Rights

On September 20, our mortgage industry experts at Richey May published a blog post outlining the impact of Basel III on mortgage servicing rights (read that post here). Then on September 27, the Basel Committee on Banking Supervision proposed a new rule titled “Simplifications to the Capital Rule Pursuant to the Economic Growth and Regulatory Paperwork Reduction Act of 1996” that, if adopted, will modify this impact. This new rule increases the limit on the amount of Common Equity Tier 1 Capital (CET1) that can be made up of mortgage servicing rights (MSRs) to 25% AND does not include a combined limit with other deductions, such as deferred tax assets. Similar to the existing standard, the portion of MSRs not included in regulatory capital would be subject to a risk weighting of 250%. If adopted, the new limit will allow mid-size depository financial institutions (DFIs) to retain a larger portion of MSR portfolios, providing them with the opportunity to maintain their consumer relationships and retain market share while maintaining CET1 capital requirements.

Our mortgage niche committee will continue to follow the Basel Committee and provide updates to our clients and friends in the industry as new rules are proposed and adopted. For questions or additional information on this topic, please contact our experts at info@richeymay.com.