Report to the Congress on the Effect of Capital Rules on Mortgage Servicing Assets
Print- Preface
- Executive Summary
- Background
- Risks to Firms Holding Mortgage Servicing Assets
- Role of Mortgage Servicing Assets in Bank Failures
- Regulatory Approaches for Mortgage Servicing Assets
- Evolution of the Mortgage Servicing Market since 1998
- Potential Impact of the Revised Capital Rule on the Mortgage Servicing Business
- Potential Impact of the Revised Capital Rule on Nonbanks
- Mortgage Servicing Assets Outside of the United States
- Analyses on Impact of the Revised Capital Rule
- Recommendations for Legislative or Regulatory Actions
- Appendix
Recommendations for Legislative or Regulatory Actions
As reflected in the results of this study, MSA valuations are inherently subjective and subject to uncertainty, as they rely on assessments of future economic variables. This reliance can lead to variance in MSA valuations across firms and raises questions regarding the ability of banking institutions to generate value from MSAs under adverse financial conditions. These results support continued limitations on the inclusion of MSAs in the regulatory capital of banking institutions.
The current statutory framework provides sufficient supervisory and regulatory tools for the federal banking agencies and NCUA to address developments in the mortgage servicing market. Accordingly, the federal banking agencies and NCUA do not at this time have any recommendations for additional legislative or regulatory actions regarding the value of and ability to sell MSAs and the ability of banking institutions to hold MSAs.
The past several years demonstrate, however, that the mortgage servicing industry is evolving rapidly. The federal banking agencies and NCUA will continue to monitor developments in mortgage servicing industry standards and practices, and will exercise their regulatory and supervisory authorities, as appropriate, to pursue their respective statutory mandates to ensure the safety and soundness of depository institutions and the stability of the U.S. financial system.
