[Congressional Record Volume 161, Number 109 (Tuesday, July 14, 2015)]
[House]
[Pages H5137-H5140]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
MORTGAGE SERVICING ASSET CAPITAL REQUIREMENTS ACT OF 2015
Mr. LUETKEMEYER. Mr. Speaker, I move to suspend the rules and pass
the bill (H.R. 1408) to require certain Federal banking agencies to
conduct a study of the appropriate capital requirements for mortgage
servicing assets for nonsystemic banking institutions, and for other
purposes, as amended.
The Clerk read the title of the bill.
The text of the bill is as follows:
H.R. 1408
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Mortgage Servicing Asset
Capital Requirements Act of 2015''.
SEC. 2. STUDY OF MORTGAGE SERVICING ASSETS.
(a) Definitions.--In this section:
(1) Banking institution.--The term ``banking institution''
means an insured depository institution, Federal credit
union, State credit union, bank holding company, or savings
and loan holding company.
(2) Basel iii capital requirements.--The term ``Basel III
capital requirements'' means the Global Regulatory Framework
for More Resilient Banks and Banking Systems issued by the
Basel Committee on Banking Supervision on December 16, 2010,
as revised on June 1, 2011.
(3) Federal banking agencies.--The term ``Federal banking
agencies'' means the Board of Governors of the Federal
Reserve System, the Office of the Comptroller of the
Currency, the Federal Deposit Insurance Corporation, and the
National Credit Union Administration.
(4) Mortgage servicing assets.--The term ``mortgage
servicing assets'' means those assets that result from
contracts to service loans secured by real estate, where such
loans are owned by third parties.
(5) NCUA capital requirements.--The term ``NCUA capital
requirements'' means the proposed rule of the National Credit
Union Administration entitled ``Risk-Based Capital'' (80 Fed.
Reg. 4340 (January 27, 2015)).
(6) Other definitions.--
(A) Banking definitions.--The terms ``bank holding
company'', ``insured depository institution'', and ``savings
and loan holding company'' have the meanings given those
terms in section 3 of the Federal Deposit Insurance Act (12
U.S.C. 1813).
(B) Credit union definitions.--The terms ``Federal credit
union'' and ``State credit union'' have the meanings given
those terms in section 101 of the Federal Credit Union Act
(12 U.S.C. 1752).
(b) Study of the Appropriate Capital for Mortgage Servicing
Assets.--
(1) In general.--The Federal banking agencies shall jointly
conduct a study of the appropriate capital requirements for
mortgage servicing assets for banking institutions.
(2) Issues to be studied.--The study required under
paragraph (1) shall include, with a specific focus on banking
institutions--
(A) the risk to banking institutions of holding mortgage
servicing assets;
(B) the history of the market for mortgage servicing
assets, including in particular the market for those assets
in the period of the financial crisis;
[[Page H5138]]
(C) the ability of banking institutions to establish a
value for mortgage servicing assets of the institution
through periodic sales or other means;
(D) regulatory approaches to mortgage servicing assets and
capital requirements that may be used to address concerns
about the value of and ability to sell mortgage servicing
assets;
(E) the impact of imposing the Basel III capital
requirements and the NCUA capital requirements on banking
institutions on the ability of those institutions--
(i) to compete in the mortgage servicing business,
including the need for economies of scale to compete in that
business; and
(ii) to provide service to consumers to whom the
institutions have made mortgage loans;
(F) an analysis of what the mortgage servicing marketplace
would look like if the Basel III capital requirements and the
NCUA capital requirements on mortgage servicing assets--
(i) were fully implemented; and
(ii) applied to both banking institutions and nondepository
residential mortgage loan servicers;
(G) the significance of problems with mortgage servicing
assets, if any, in banking institution failures and problem
banking institutions, including specifically identifying
failed banking institutions where mortgage servicing assets
contributed to the failure; and
(H) an analysis of the relevance of the Basel III capital
requirements and the NCUA capital requirements on mortgage
servicing assets to the banking systems of other
significantly developed countries.
(3) Report to congress.--Not later than 180 days after the
date of enactment of this Act, the Federal banking agencies
shall submit to the Committee on Banking, Housing, and Urban
Affairs of the Senate and the Committee on Financial Services
of the House of Representatives a report containing--
(A) the results of the study required under paragraph (1);
(B) any analysis on the specific issue of mortgage
servicing assets undertaken by the Federal banking agencies
before finalizing regulations implementing the Basel III
capital requirements and the NCUA capital requirements; and
(C) any recommendations for legislative or regulatory
actions that would address concerns about the value of and
ability to sell and the ability of banking institutions to
hold mortgage servicing assets.
The SPEAKER pro tempore. Pursuant to the rule, the gentleman from
Missouri (Mr. Luetkemeyer) and the gentlewoman from California (Ms.
Maxine Waters) each will control 20 minutes.
The Chair recognizes the gentleman from Missouri.
general leave
Mr. LUETKEMEYER. Mr. Speaker, I ask unanimous consent that all
Members may have 5 legislative days in which to revise and extend their
remarks and include extraneous material on this bill.
The SPEAKER pro tempore. Is there objection to the request of the
gentleman from Missouri?
There was no objection.
Mr. LUETKEMEYER. Mr. Speaker, I yield myself such time as I may
consume.
I rise today in support of H.R. 1408, as amended. I want to thank the
gentleman from Colorado (Mr. Perlmutter) for introducing the
legislation.
Mortgage servicing assets, or MSAs, also known as mortgage servicing
rights, are contracts to service mortgage loans. Historically, these
assets have been held by banks and credit unions that have existing or
developing relationships with their customers.
However, the Basel III negotiations dramatically changed the capital
requirements for MSAs, forcing many financial institutions to sell off
these assets. Many have been sold to hedge funds or other nonbanks with
little to no experience in dealing directly with consumers.
In recent years, a bipartisan group of five members of the Financial
Services Committee sent letters to Federal banking regulators asking
whether or not they have studied MSAs or MSA performance during the
financial crisis before finalizing the Basel-generated capital
requirements. The answer was pretty clear; the regulators had not.
There was no consideration of MSAs, how the assets have performed
historically, or the impact that higher capital would have on
consumers. What is more disconcerting is MSAs exist only in the United
States. These are a uniquely American product. Nowhere else in the
world do MSAs exist; yet it was international regulators who decided
how these assets should be treated.
Last year, New York State superintendent of financial services
Benjamin Lawsky addressed MSAs before a meeting of the Institute of
International Bankers. Lawsky stated:
We are finding we are creating giant nonbank servicers who,
in a couple of instances . . . are not fully prepared to deal
with this exponential rise in their portfolios, and they
don't have the capacity to service the loans they are taking
on.
Lawsky went on to say:
While, on the one hand, we were trying to get rid of a
problem, we made a different problem worse.
H.R. 1408 is a straightforward, bipartisan bill. The bill simply says
that the U.S. banking regulators need to go back and study MSAs and the
impact the new capital requirements will have on consumers. Given what
we have seen in this space in the last year, I think it is not only
appropriate but completely necessary that we take another look at MSAs.
I want to, again, thank Mr. Perlmutter for his work on this
legislation, and I ask that my colleagues support our effort to ensure
that a more methodical approach is taken by the banking regulators.
Mr. Speaker, I reserve the balance of my time.
Ms. MAXINE WATERS of California. Mr. Speaker, I yield myself such
time as I may consume.
During the foreclosure crisis of the last several years, we have
learned how important the role of mortgage servicing is to our economy
and our constituents. I am proud of the work we did in the Dodd-Frank
Act and of the work that the Consumer Financial Protection Bureau
continues to do to reform the practices of the mortgage servicing
industry.
Unfortunately, this Congress has not been able to move legislation on
broader housing finance reform. While we have left this business
unfinished, there has been a large shift in the structure of the
mortgage servicing industry, as nonbank servicers who are supervised by
State regulators play a much larger role than they have in the past.
That is why I am supporting the good, bipartisan work Mr. Perlmutter
and Mr. Luetkemeyer have engaged in to make sure that State and Federal
regulators are working together to understand the changes in the
mortgage servicing industry and to make sure bank and nonbank services
are treated appropriately under new financial rules.
This study will give regulators the information they need to monitor
the impact of capital standards on the mortgage servicing market and
encourage State and Federal regulators to work together to ensure that
all mortgage services are appropriately capitalized, regardless of who
regulates them.
{time} 1345
H.R. 1408 will ensure that regulators are paying close attention to a
vital part of our housing and financial system, and I am happy that we
were able to work with the majority to pass this bill.
So I thank you, and I reserve the balance of my time.
Mr. LUETKEMEYER. Mr. Speaker, I yield such time as he may consume to
the gentleman from Arkansas (Mr. Hill), who is a distinguished member
of our Financial Services Committee.
Mr. HILL. I thank the manager, my friend from Missouri.
Mr. Speaker, I rise today in support of H.R. 1408, the Mortgage
Servicing Asset Capital Requirements Act.
Mortgage servicing is a very valued product for our community banks.
I am proud to represent several mortgage service firms connected to
community banks in my State of Arkansas.
Having mortgage servicing assets connected with a residential lending
portfolio adds value; it is incidental and important to banking; and,
effectively, it is a proper hedge, a natural hedge for that residential
lending business.
However, because of Basel III's capital requirements imposed on
mortgage servicing organizations, many banks are being forced to sell
their MSA portfolios to hedge funds or nonbanks, which don't really
have the experience with the local customers in a personal,
knowledgeable way like our community banks do.
MSAs are unique, as the gentleman from Missouri said, to the United
States, but they are being regulated by
[[Page H5139]]
rules developed by an international body without any study as to
whether additional capital is even needed or any review on the impact
of customer relationships.
In my view, while staying implementation of these capital
requirements during a study, as provided in the original version of the
bill, would be optimal, it is nonetheless imperative that the impacts
of this rule be thoroughly analyzed, vetted, and understood.
I thank my friends, the gentlemen from Colorado and Missouri, for
their work. I ask my colleagues to support this commonsense bill.
Ms. MAXINE WATERS of California. Mr. Speaker, I yield such time as he
may consume to the gentleman from Colorado (Mr. Perlmutter), and I
would like to thank him for the work that he has put into this
legislation.
Mr. PERLMUTTER. Mr. Speaker, to my friend from California, I thank
Congresswoman Waters, Chairman Hensarling for allowing me to bring this
forward, my friend from Missouri (Mr. Luetkemeyer), and I appreciate
the remarks of the gentleman from Arkansas (Mr. Hill).
So after years of working on this issue, I am glad to see our work is
culminating with the passage of H.R. 1408 today.
The language before us today represents a compromise simply requiring
the Federal banking regulators--and by those I mean the Federal
Reserve, the Federal Deposit Insurance Corporation, the National Credit
Union Administration, and the Office of the Comptroller of Currency--to
jointly study the capital treatment of mortgage servicing assets or
mortgage servicing rights, and I will say MSRs or MSAs, under the Basel
III Accords. It is nearly identical to section 116 of S. 1484, offered
by Chairman Shelby in the Senate Banking Committee.
Now, it differs from the original bill passed out of the Financial
Services Committee on March 26 that included language to delay the
current rule while regulators conducted a study and then proposed new
appropriate capital requirements for MSRs. While many of us wish the
bill included those provisions, the study is what is key. The study
will be an important step in informing how we proceed with future
actions establishing the appropriate capital requirements for MSRs.
Now, what does H.R. 1408 require?
Under H.R. 1408, regulators will have 6 months to study and report
back to Congress many outstanding questions about the mortgage
servicing industry, including:
One, the risk to banks and credit unions of holding mortgage
servicing assets, MSAs;
Two, how the assets performed during the financial crisis;
Three, the ability to establish a value and liquidity for MSAs;
Four, the impact of imposing Basel III capital requirements on banks
versus nonbank servicers; and
Five, the impact to consumers and the ability of regulated banks to
service mortgages that they originate.
The mortgage servicing industry has shifted since the financial
crisis of 2008, as Congresswoman Waters mentioned. We have seen a
significant sale of MSRs and MSAs from banks to nonbanks, including to
specialty servicers, private equity firms, and hedge funds.
In 2013, about $1.03 trillion of mortgage servicing rights were sold,
with a vast majority going to nonbank servicing companies. Moreover,
the percentage of loans serviced by nonbanks has steadily increased
from 12 percent to almost 31 percent.
Now, why is the market shifting?
While there are several factors for the growth in nonbank servicing
activity, I believe the primary driver has been the capital treatment
of MSAs under the Basel III Accords.
Basel III was always intended to apply to the largest, most
interconnected globally active banks, but the MSA capital treatment is
actually having the greatest impact on our smaller community banks.
Basel III caps the value of MSAs that depository institutions can
count towards their tier 1 capital at 10 percent. Any MSAs that exceed
the 10 percent threshold are subject to 100 percent risk weight, a
standard that will increase to 250 percent by 2018.
Why is this a concern?
In addition to the capital treatment, there is a discrepancy between
how banks and nonbank servicers are regulated. So there is additional
regulation that comes down on the community banks while that same kind
of regulation isn't seen by the nonbank servicers. And if there were to
be another sudden market disruption or downturn, it is important we
understand if nonbank mortgage servicers have the capacity or the
expertise to manage defaults or modifications.
The Financial Stability Oversight Council, the FSOC, in its 2014
annual report specifically named the transfer of mortgage servicing
rights to nonbanks as a ``potential emerging threat.''
The report says: ``MSRs are increasingly being transferred to nonbank
mortgage servicing companies. While the CFPB and State regulators have
some authority over these companies, many of them are not currently
subject to prudential standards such as capital, liquidity, or risk
management.''
Adam Levitin, the Democratic witness at our hearing, spoke favorably
and in support of the bill, saying:
``MSRs have traditionally been an important asset class for
depositories, as their value provides a countercyclical offset to
mortgage origination activity, and MSR accounting is subject-enough to
give depositories room to smooth their earnings.
``Basel III changes make MSRs an unattractive asset for banks.''
Representative Luetkemeyer and I have questioned whether the
prudential regulators struck the right balance between limiting risk
exposure and ensuring that depository institutions can still compete
with the nonbank entrants in the mortgage servicing arena. From the
conversations we have had with the regulators, it is clear they did not
study the specific capital treatment applied to MSAs and the impacts on
consumers and the market.
Banks want to continue servicing mortgages they originate and
maintain these connections to their communities, as Mr. Hill mentioned.
However, if the current capital requirements remain in effect, it would
make it more and more difficult.
Mr. Speaker, I will place in the Record two letters that we have
received--one dated July 13 from the American Bankers Association, the
other dated July 14 from the National Association of Federal Credit
Unions--in support of H.R. 1408. I am glad that we were able to seek
and reach a compromise on this bill. I urge the quick passage of H.R.
1408.
American Bankers Association,
July 13, 2015.
Re: ABA Support for H.R. 1334, H.R. 1408 and H.R. 1529
Members of the House of Representatives: On behalf of the
members of the American Bankers Association (ABA), I am
writing to express our strong support for three banking
related measures that are scheduled for consideration on the
House suspension calendar on Tuesday, July 14.
H.R. 1334, the Holding Company Registration Threshold
Equalization Act, introduced by Representatives Steve Womack
(R-AR), Jim Himes (D-CT), Ann Wagner (R-MO) and John Delaney
(D-MD), would extend to savings and loan holding companies
(SLHCs) the Securities and Exchange Commission shareholder
registration and deregistration thresholds enacted under the
JOBS Act.
The JOBS Act did not expressly extend the new shareholder
thresholds to savings and loan holding companies (SLHCs) as
defined by the Home Owners Loan Act. However, Congress did
not intend to treat SLHCs differently from bank and bank
holding companies. H.R. 1334 would correct this oversight and
extend the shareholder registration and deregistration
requirements to SLHCs.
This bill passed the House Financial Services Committee on
May 20, 2015 by a vote of 60-0 and passed the full House last
Congress by an overwhelming vote of 417-4. We urge the
members to once again pass this legislation.
In addition, the House will consider H.R. 1408, the
Community Bank Mortgage Servicing Asset Capital Requirements
Act of 2015 introduced by Representatives Ed Perlmutter (D-
CO) and Blaine Luetkemeyer (R-MO). This ABA supported
legislation would defer implementation of the Basel III rules
on mortgage servicing assets (``MSAs'') until the impact of
the new rules can be studied and alternatives explored.
Many banks that make mortgage loans also engage in
servicing, which primarily consists of collecting mortgage
payments and forwarding them to the ``owner'' of the loan;
collecting insurance and tax payments; and addressing
problems such as late payments, delinquencies, and defaults.
Banks commonly sell mortgage loans into the secondary market
but retain the right to service the loan (called ``servicing
retained''). This strategy is an important way for banks to
maintain valuable connections with their
[[Page H5140]]
customers, while managing interest rate risk by selling long-
term credit assets.
Banks are retaining less mortgage servicing due to Basel
III's unfavorable capital treatment of MSAs. As a result,
Basel III is unintentionally increasing the concentration of
servicing held by less regulated, non-bank firms such as
mortgage companies, REITs, hedge funds, and private equity
firms that are not subject to the new capital restrictions.
The long-term relationships that banks and their customers
have established should not be penalized by Basel III's
punitive capital treatment of MSAs.
Banks should be encouraged to service the loans that they
make to their customers. This legislation stops the negative
effects until the impact can be fully examined. The bill does
not apply to the large international banks that Basel III was
meant to address.
H.R. 1408 passed the House Financial Services Committee on
March 26 by a strong bipartisan vote of 49-9. ABA urges
strong support for this legislation.
The House will also consider H.R. 1529, the Community
Institution Mortgage Relief Act of 2015, introduced by
Representatives Brad Sherman (D-CA) and Blaine Luetkemeyer
(R-MO). This bipartisan legislation, which passed the House
Financial Services Committee by a vote of 48-10, would exempt
from the escrow requirements imposed under the Dodd/Frank Act
loans held by small creditors with less than $10 billion in
assets. ABA supports the legislation's expansion of the
Consumer Financial Protection Bureau's (CFPB) ``small
servicer'' exemption to include servicers that annually
service 20,000 or fewer mortgage loans. These important
exemptions recognize the strong history of small institutions
in providing high-quality mortgage servicing, even with
limited staff and resources of smaller institutions.
Given their track record, small servicers should be
incentivized to continue to service mortgage loans.
Unfortunately, existing regulations are having the opposite
effect. The existing escrow rules have the potential to drive
small creditors from the mortgage market because it is
difficult, if not impossible, for them to provide escrow
services in a cost effective manner. Further, imposing escrow
requirements often runs counter to customer preference as
many mortgage customers prefer to pay tax and insurance bills
on their own and not establish escrow accounts. Without the
exemptions provided in this legislation, customers of smaller
institutions will face higher costs to offset the cost of
compliance for a service which they do not in some cases even
want. Worse, some customers will face fewer credit choices as
small local lenders choose to exit the mortgage market rather
than incur the added staffing and technical expenses of
adding escrow services. This is an important piece of
legislation and ABA urges the House to pass H.R. 1529.
James Ballentine,
Executive Vice President, Congressional Relations and
Political Affairs.
____
National Association of
Federal Credit Unions,
Arlington, VA, July 14, 2015.
Re: Support for the Mortgage Servicing Asset Capital
Requirements Act of 2015 (H.R. 1408)
Hon. John Boehner,
Speaker, House of Representatives,
Washington, DC.
Hon. Nancy Pelosi,
Minority Leader, House of Representatives,
Washington, DC.
Dear Speaker Boehner and Leader Pelosi: On behalf of the
National Association of Federal Credit Unions (NAFCU), the
only trade association exclusively representing the federal
interests of our nation's federally insured credit unions, I
write today to urge your support of the Mortgage Servicing
Asset Capital Requirements Act of 2015 (H.R. 1408), as
amended, when it comes to the House floor. 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.
As you know, NAFCU has concerns about many aspects of the
NCUA's risk-based capital proposal including the portion
relative to mortgage servicing assets which has a risk weight
of 250 percent. NAFCU believes this is artificially high and
a risk weight of 150 percent is more appropriate. 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. In short, this entire
proposal should be withdrawn until adequate cost-benefit
analysis is done to determine the impact it will have on
credit union lending and job creation. While NAFCU does not
oppose a risk-based capital regime for credit unions, it must
be done properly through statue with ample Congressional
input.
Not only does NAFCU urge passage of H.R. 1408 to look at
the mortgage servicing assets portion of the NCUA's risk-
based capital proposal, but we also encourage the House to
support and schedule action on the Risk-Based Capital Study
Act of 2015 (H.R. 2769). This bipartisan legislation,
introduced by Representatives Fincher, Posey and Denny Heck,
would require NCUA to study the full impact of the entire
risk-based capital proposal on credit unions and report back
to Congress before taking any final action on the proposal.
Again, thank you for scheduling the consideration of the
Mortgage Servicing Asset Capital Requirements Act (H.R. 1408)
on the floor this week. We urge strong support for this
legislation and hope the appropriate capital requirements for
credit unions continue to be a focus in the House during this
Congress.
Sincerely,
Brad Thaler,
Vice President of Legislative Affairs.
Ms. MAXINE WATERS of California. Mr. Speaker, I yield back the
balance of my time.
Mr. LUETKEMEYER. Mr. Speaker, I just want to reiterate my support and
thanks for the hard work of the gentleman from Colorado. He has been a
leader on this issue, and certainly it has been a pleasure to work with
him.
I urge passage of H.R. 1408, and I yield back the balance of my time.
The SPEAKER pro tempore. The question is on the motion offered by the
gentleman from Missouri (Mr. Luetkemeyer) that the House suspend the
rules and pass the bill, H.R. 1408, as amended.
The question was taken; and (two-thirds being in the affirmative) the
rules were suspended and the bill, as amended, was passed.
The title of the bill was amended so as to read: ``A bill to require
certain Federal banking agencies to conduct a study of the appropriate
capital requirements for mortgage servicing assets for banking
institutions, and for other purposes.''.
A motion to reconsider was laid on the table.
____________________