WASHINGTON — The House passed a bill Tuesday that could ease the regulatory burden on credit unions and smaller banks with mortgage servicing businesses.
The legislation, which passed by voice vote, requires credit union and bank regulators to conduct a study on whether financial institutions 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%.
CU and bank industry representatives had supported the bill's passage, saying the capital levels required under the Basel III standards are having a negative effect.
"This bipartisan measure introduced by Representatives Perlmutter and Luetkemeyer would, among other things, ensure that the National Credit Union Administration (NCUA) study its second risk-based capital proposal's impact on credit union mortgage servicing assets," wrote NAFCU Vice President of Legislative Affairs Brad Thaler in a letter to House Speaker John Boehner and House Minority Leader Nancy Pelosi.
Thaler noted that NAFCU has concerns about many aspects of the agency's risk-based capital proposal, including the portion relative to mortgage servicing assets which has a risk weight of 250 percent.
"This portion of the proposal is indicative of much larger issues with NCUA's proposal and NAFCU continues to believe it is a solution in search of a problem," he wrote "While NAFCU does not oppose a risk-based capital regime for credit unions, it must be done properly through statute with ample Congressional input."
In his letter to House members, James Ballentine, executive vice president at the American Bankers Association, noted: "Banks are retaining less mortgage servicing due to Basel III's unfavorable capital treatment" of mortgage servicing assets.
Ballentine 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," he said.