[Congressional Record (Bound Edition), Volume 161 (2015), Part 8]
[House]
[Pages 11443-11446]
[From the U.S. 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;
       (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.

[[Page 11444]]

       (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 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

[[Page 11445]]

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 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.

[[Page 11446]]

       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.

                          ____________________