Statement of MBA President and CEO Bob Broeksmit, CMB, on the Basel III Bank Capital Proposal Before the U.S. House Subcommittee on Financial Institutions and Monetary Policy
September 14, 2023
WASHINGTON, D.C. (September 14, 2023) – MBA President and CEO Bob Broeksmit, CMB, testified today at a hearing entitled, "Implementing Basel III: What's the Fed's Endgame?" before the U.S. House Financial Services Committee (Subcommittee on Financial Institutions and Monetary Policy).
[Please Note: Please find Bob Broeksmit's prepared oral statement below. Broeksmit may add to or subtract from these remarks during the course of his testimony. Portions of the text may be omitted during the testimony.]
Robert D. Broeksmit, CMB, Mortgage Bankers Association
Chairman Barr, Ranking Member Foster, and members of the subcommittee, I appreciate the opportunity to testify this morning on behalf of the Mortgage Bankers Association, the national association representing more than 2,200 member firms – and an industry that employs roughly 390,000 individuals – and provides real estate finance-related services in virtually every community across our nation.
My over 35 years of experience in real estate finance gives me a unique appreciation for the complexity of the housing finance system, as well as the importance of ensuring that it works for all participants.
MBA believes that this NPR poses unwarranted risks to the U.S. economy, to housing and real estate markets specifically, and contradicts many of the Biden Administration’s policy goals.
This includes efforts to close the racial homeownership and wealth gaps, the provision of affordable housing (both ownership and rental), the promotion of competition over consolidation, and the upcoming unveiling of a final Community Reinvestment Act rule.
It is still unclear how the NPR interacts with other regulatory proposals and how these rules collectively could stunt economic growth and credit access needed to support the creation of more affordable ownership and rental housing from the largest providers of capital in the country.
It is also unclear what specific problems the NPR is trying to solve, considering that the Federal Reserve and U.S. Treasury have consistently stated that the banking system is strong.
For example, capital ratios of large banks operating in the U.S. have more than doubled since the Great Financial Crisis, and more than a decade of real-life experience has demonstrated that banks have adequate capital to withstand significant economic shocks.
In fact, recent stress test results confirm that the banking system is safe and well-capitalized.
The large increases in capital standards will likely stunt macroeconomic growth and reduce banks’ participation as single-family and commercial/multifamily lenders, servicers, and as providers of warehouse lines and mortgage servicing rights financing.
The proposed changes effectively increase capital requirements at larger banks by about 15 to 20 percent – large enough to impact which lines of business banks choose to support or withdraw from.
The proposal makes significant changes to how banks calculate their risk-weighted assets and imposes several additional requirements on banks with assets of $100B or more, including:
- A requirement to include net unrealized losses on available-for-sale securities in the calculation of regulatory capital.
- Lowering the cap on regional banks’ holdings of MSRs to 10% of capital – less than 5 years after it was raised to 25% in order to encourage more banks to service mortgages.
- Under the proposal – get this. Every million dollars of capital an impacted bank allocates to mortgage lending would translate to AT LEAST $7 million less lending to first-time homebuyers who can’t come up with a 20 percent down payment.
This in turn could cause banks to pull back even further from the mortgage business, making homeownership less attainable to first-time homebuyers and low- and -moderate-income borrowers with smaller down payments.
These borrowers overwhelmingly rely on low downpayment mortgages to attain homeownership and the proposed capital rules could discourage bank portfolio lending to these borrowers, driving all low downpayment activity to the GSEs or government-insured / guaranteed programs.
As a result, the proposed requirements could undercut the CRA and special purpose credit programs (SPCPs) that leverage portfolio lending as strategies to close the racial homeownership and wealth gaps.
The failure of the proposal to provide any credit whatsoever for private mortgage insurance effectively defeats the purpose of that insurance and significantly increases costs for homebuyers.
A capital regime that recognizes the mitigation of credit risk provided by private mortgage insurance is not only far more efficient, but also reduces costs and improves affordability for first-time and underserved homebuyers who cannot make a 20 percent down payment.
Given ongoing affordable housing challenges, regulators should be taking steps that encourage banks to better support real estate finance markets.
This proposal does precisely the opposite during a time of near record-low single-family delinquencies and pristine underwriting.
In conclusion, MBA strongly opposes certain provisions of the proposal that undermine the mortgage market and takes exception to the extremely scant economic analysis regarding how the changes will affect the economy, single-family housing market, and commercial real estate finance markets.
Thank you for this opportunity to testify this morning. I look forward to answering any questions you have.