The House passed a bill Tuesday that could ease the regulatory burden on community and regional banks with mortgage servicing businesses.
The legislation, which passed by voice vote, requires bank and credit union regulators to conduct a study on whether banks other than those with systemic footprints should have to hold higher capital because of their servicing assets. The bill would also delay implementation of servicing-related capital rules under the Basel III standards and a National Credit Union Administration proposal for at least three months after the study is completed.
The study would be due within six months of the bill's enactment. The legislation was introduced by Reps. Edward Perlmutter, D-Colo., and Blaine Luetkemeyer, R-Mo.
Although the legislation would not bring about any actual reforms, it could presage further moves to address servicing requirements.
"While this bill would not direct any action beyond the report and short implementation delay, we view this legislation as a signal of the forthcoming push to soften the capital treatment of mortgage servicing assets on regional and community bank balance sheets," Isaac Boltansky, an analyst at Compass Point Research & Trading, wrote in a research note. Boltansky put the odds of full enactment of the bill this year at 60%.
Industry representatives had supported the bill's passage, saying the capital levels required under the Basel III standards are having a negative effect.
"Banks are retaining less mortgage servicing due to Basel III's unfavorable capital treatment" of mortgage servicing assets, James Ballentine, executive vice president at the American Bankers Association, said in a July 13 letter to House members.
He added that mortgage servicing activity is moving to less-regulated institutions.
"The long-term relationships that banks and their customers have established should not be penalized by Basel III's punitive capital treatment of MSAs," Ballentine said.
