The Community Home Lenders of America (CHLA) is supporting federal regulators' proposed changes to bank capital requirements for mortgage assets, but says the changes alone are unlikely to bring banks back into mortgage lending.
In a comment letter submitted to the Office of the Comptroller of the Currency (OCC), Federal Reserve and Federal Deposit Insurance Corp. (FDIC) last week, CHLA backed lower capital risk weights for mortgage servicing rights (MSRs), said it does not oppose lower risk weights for whole mortgage loans, and called for the proposed risk weight on warehouse lending to be reduced from 100% to 50%.
The comments respond to a proposed overhaul of the bank regulatory capital framework that would revise capital treatment for several mortgage-related assets. Regulators have said the proposal is intended to modernize the framework and remove unnecessary disincentives to mortgage lending while maintaining the safety and soundness of the banking system.
While supporting the proposal overall, CHLA argued that lower capital requirements alone are unlikely to significantly increase banks' participation in the mortgage market.
"At the same time, CHLA is skeptical that these risk weight reductions will have any significant impact in bringing banks back into the business of originating mortgage loans to be held in portfolio or to originate FHA and other federal agency loans," the letter states.
"We believe there are many other business and financial factors that play a more significant role in the banks' broad retreat from the mortgage business over the last 15 years."
Although CHLA exclusively represents independent mortgage banks (IMBs), the association said it does not oppose reducing capital requirements for bank mortgage assets. Instead, it said broader business and financial considerations have played a more significant role in banks' reduced participation in mortgage lending.
Among its recommendations, CHLA urged regulators to lower the proposed capital risk weight for warehouse lending from 100% to 50%, arguing that warehouse lines are critical to financing independent mortgage lenders and should receive more favorable treatment under the revised framework.
The association also pointed to the changing makeup of the mortgage market, noting that independent mortgage banks now originate roughly 84% of U.S. mortgages, compared with about 30% in 2013.
Beyond the proposed capital changes, CHLA used the comment letter to renew its longstanding call for Ginnie Mae to establish a standby liquidity facility for otherwise solvent nonbank issuers during periods of heightened servicing advances.
According to the association, independent mortgage banks are expected to continue advancing principal and interest payments for delinquent borrowers but lack access to the government-backed liquidity sources available to banks, including the Federal Reserve's discount window, Federal Home Loan Bank advances, and FDIC-backed funding.
CHLA said such a facility could be modeled after the Pass-Through Assistance Program (PTAP) introduced during the COVID-19 pandemic and supported through a Federal Reserve Term Asset-Backed Securities Loan Facility (TALF)-style structure using servicing advances or loan buybacks as collateral.
If regulators adopt portions of the proposal, banks could face lower capital requirements for holding certain mortgage assets, while warehouse lending could also receive more favorable treatment if CHLA's recommendation is adopted. Even so, CHLA argues the changes alone are unlikely to alter the industry's competitive landscape unless policymakers also address liquidity challenges facing independent mortgage banks.
