Basel III’s punitive treatment of mortgage servicing assets (MSAs) is having a disruptive and damaging effect on real estate financing, ABA and two other trade groups told regulatory agencies. Banks want to service mortgage loans for their customers, but if left unchanged, Basel III “will drive good bank servicers who want to service out of the business,” the groups explained.
Bank ownership of MSAs is beneficial for banks and customers, the groups contended. MSAs are a safe and sound earning asset, a source of revenue when the underlying mortgage is sold and a hedge for interest rate risk.
Noting that no bank has been known to fail due to its holdings of MSAs, the groups urged the regulators to change the risk weighting for MSAs to 100 percent. They also recommended that MSAs receive a higher 10% cap before deduction from common equity and that MSAs be excluded from the 15% cap on assets that triggers capital charges.
Read the letter.