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The Federal Reserve will soon issue proposals to change the regulatory capital framework in ways that incentivize banks to originate and service mortgages, Vice Chair for Supervision Michelle Bowman said at ABA’s Conference for Community Bankers in Orlando this past Tuesday.
Specifically, the proposals would “remove the requirement to deduct mortgage servicing assets from regulatory capital while maintaining the 250% risk weight assigned to these assets,” Bowman said. They would also consider increasing the risk sensitivity of mortgage loans held by banks — that is, creating a broader range of risk weights that would reflect the relative characteristics of different loans, “rather than applying a uniform risk weight regardless of [loan-to-value ratio],” she explained.
Bowman’s speech came in light of a long-term erosion of banks’ role in the mortgage market that she said “has been costly for banks, consumers and the overall mortgage system.”