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Capital Commentary
- by Kirk Willison
kwillison@archmi.com
www.archmi.com
Direct 202-714-8606

If scorching summer temperatures weren’t bad enough, the housing finance industry is hot under the collar due to new bank capital requirements, found in the so-called Basel 3 Endgame, for home loans held in portfolio.

In this issue, Capital Commentary does a deep dive into the potential ramifications of the new capital proposal and bids adieu to a giant in the mortgage industry.

Why should you care?

•  Pete Mills, Senior Vice President, Residential Policy & Member Engagement of the Mortgage Bankers Association, offers a primer here.

1-Big Thing: Will Banks Lockdown Mortgage Lending?

Housing experts are fearful that large banks will significantly pull back on home lending due to proposed new capital requirements for residential mortgages.

• U.S. bank regulators - the Federal Reserve, FDIC and OCC - released their Basel III Endgame proposal in late July, establishing leverage ratios and higher capital-reserve targets for the 30 largest commercial banks (those over $100 billion in assets).

Why it matters: The proposed levels - in some situations twice as high as existing requirements and well above requirements for banks overseas - will make it more expensive for banks to hold mortgages.

• Lower-income and minority home-loan seekers would bear the brunt if banks determine their capital is better used for other types of lending rather than home mortgages.

By the numbers: The proposal adds 20 percentage points to each of the corresponding Basel III risk weights agreed to by international bank regulators.

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