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Tuesday, May 13, 2014

Plagge Proposal Would Stem Outflow of MSRs from Banks

ABA Chairman Jeff Plagge wrote to Treasury Secretary Jack Lew to commend the FSOC’s scrutiny of the stability risks posed by the increasing involvement of nonbanks in the mortgage servicing business. Plagge also offered a solution that will reduce the flow of mortgage servicing rights out of the prudentially regulated banking sector.

“The increase in capital requirements for MSRs at institutions subject to Basel III is a significant factor driving MSRs to companies with lesser regulatory burdens and costs,” Plagge noted, adding that these requirements were advocated by regulators from countries where banks hold few or no MSRs. He added:

It makes little sense to focus only on improving prudential standards in the lesser regulated and supervised segment of the servicing industry to which assets are flowing, and not address the cause of that outflow. At the end of the day, consumers are not going to be well served by forcing servicing away from the banks that originated these mortgages.

Plagge — president and CEO of Northwest Financial Corp., Arnolds Park, Iowa — recommended that the Basel III deduction threshold for MSRs be raised from 10% to 25% of common equity Tier 1 capital, and that MSRs be eliminated from the 15% aggregate deduction.

Read the letter.

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