ABA supports Luetkemeyer’s proposal to suspend Basel MSA capital rule

200px-American_Bankers_Association_LogoThe American Bankers Association expressed support on Monday for bipartisan legislation to delay the implementation of Basel III regulations on mortgage servicing assets until an impact study is conducted and alternatives are explored.

The legislation—H.R. 4042, introduced by Rep. Blaine Luetkemeyer (R-Mo.) with Rep. Ed Perlmutter (D-Colo.) as a co-sponsor—directs the Federal Reserve, OCC and FDIC to jointly study the appropriate capital requirements for institutions other than those identified by the Financial Stability Board as systemically important financial institutions.

Under the legislation, if enacted, the analysis will be required to be completed within one year of the date of the bill’s enactment—the bill would suspend the current MSA capital rule during the one-year period.

“The Basel capital provisions on MSAs were suggested by regulators from foreign countries that have vastly different mortgage systems than our own; in fact, foreign nations do not even have MSAs,” the ABA said in a letter to Luetkemeyer and Perlmutter. “The Basel rules were designed primarily for large international banks, not for small and mid-size banks; applying these rules to smaller banks has a very different and more dramatic impact on an institution’s ability to conduct business.”

The ABA said the new MSA rules will make it harder for community banks to remain in the mortgage servicing market, pointing to the increased sale of MSA portfolios to non-bank institutions.

“These buyers are often short-term participants that have no interest in developing customer relationships over the long term,” the ABA said. “It does not make sense to drive the servicing business to entities that have no incentive to develop relationships with their customers and are outside the purview of federal banking regulators.”

Other co-sponsors to the legislation include Reps. Tom Cotton (R-Ark.), Frank Lucas (R-Okla.), Steve Womack (R-Ark.), Tim Griffin (R-Ark.), Lynn Jenkins (R-Kan.), James Lankford (R-Okla.), Eric Crawford (R-Ark.), Tim Huelskamp (R-Kan.) and Robert Latta (R-Ohio).

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