Bowman previews Fed proposals to support bank participation in mortgages

Federal Reserve Vice Chair for Supervision Michelle Bowman said her agency will soon introduce two regulatory proposals to increase bank incentives to engage in mortgage origination and servicing.

Details: Speaking in Orlando, Bowman said the proposals would:

• Remove the requirement to deduct mortgage servicing assets from regulatory capital (known as the 25% cap) while maintaining the 250% risk weight assigned to these assets—and will seek input from banks on what the appropriate risk weight should be.

• Consider increasing the risk sensitivity of capital requirements for mortgage loans on bank books, which could better align capital requirements with actual risk, support on-balance-sheet lending by banks, and reverse the trend of migration of mortgage activity to nonbanks.

ICBA View:

• ICBA has consistently voiced concerns over requirements that would add costs and discourage community banks from servicing mortgages and will be commenting on the proposal once it is released.

• ICBA last month suggested eliminating the mortgage servicing asset cap for community banking organizations that opt into the community bank leverage ratio framework, which would provide meaningful regulatory relief for community banks with strong and well-managed mortgage servicing platforms.