Mortgage capital requirements would explicitly recognize loan-to-value (LTV) ratios, Bowman said: higher-quality, lower-LTV loans should attract lower capital charges, while riskier, high-LTV loans would carry more capital.
Under the new standardized approach and Basel III proposals, banks wouldn’t be required to deduct mortgage servicing assets (MSAs) from regulatory capital, with MSAs instead receiving a 250% risk weight. The Fed is currently seeking public feedback on whether that weighting is appropriate.
That move, Bowman said, should “reduce disincentives for participating in mortgage markets and servicing their mortgage originations, thereby addressing the mortgage activity migration to nonbanks over the past 15 years.”
She also mentioned earlier proposed changes to the community bank leverage ratio (CBLR), and noted that a more flexible leverage framework could make it easier for those smaller lenders to grow their loan books – especially in lower-risk, relationship-based mortgage products – without tripping leverage constraints.
When first revealing the Fed’s plans in February, Bowman appeared to suggest that the migration of mortgage originations away from the banking space had been detrimental to the market as a whole.
