Trade association warns higher capital requirements would exacerbate housing affordability problems
The Mortgage Bankers Association has sent a letter to the leadership at US bank regulators urging them to vote ‘no’ on a proposed bank capital rule and delay its release.
The “Basel III Endgame” is a set of rules that will impose a 15% to 20% increase in capital requirements for larger institutions. The proposed rulemaking, set for consideration today (July 27), is designed to make capital requirements more risk-sensitive while increasing the amount and quality of banks’ financial resources.
However, MBA countered that given ongoing housing affordability and supply challenges, the proposal will likely lead to a shift where mid-sized and regional banks will focus their core businesses and reduce credit availability for all types of lending, including single-family and commercial/multifamily.
“We are particularly concerned about press reports of a sharp increase in risk weights for single-family mortgages – 20% points above the levels in the Basel Committee framework,” MBA president and CEO Bob Broeksmit wrote in a letter published Wednesday. “Higher capital in general, and sharply higher risk weightings on single-family mortgages, could exacerbate already-challenging conditions facing the housing market. Importantly, we are also concerned about the combined effect of the banking regulatory framework for housing and rental housing supply. Specifically, the proposed Community Reinvestment Act overhaul combined with the proposed capital standards will restrict the creation of new affordable housing units, in contrast to the Administration’s stated priorities.”
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The trade association also said the banking agencies must conduct the analysis needed to avoid precipitating a withdrawal of support for real estate finance markets from the largest providers of capital in the country.
“While it has been suggested that a phased implementation will minimize the impact, we know from prior experience that investors and markets will react immediately to such significant capital changes, and banks will be forced to respond to that pressure in real time,” the letter read. “The economic impact cannot be mitigated by phased implementation alone.
“MBA strongly opposes this NPR and urges the banking regulators to delay its release until the necessary quantitative impact study (QIS) has been completed, a review of the combined effects of regulatory changes on the creation of affordable and affordable rental housing has been conducted, and appropriate adjustments incorporated into a proposed rule.”
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