Federal Reserve's Bowman: The regulatory capital treatment of mortgage servicing rights should be reconsidered

Federal Reserve Vice Chair for Supervision Michelle Bowman stated that the shift of U.S. mortgage business from banks to non-bank lenders is a "concerning trend."

Speaking at a banking conference in Orlando, Bowman attributed part of the reason to restrictive capital requirements applied to mortgage servicing rights.

Mortgage Servicing Rights (MSR) are assets on a bank’s balance sheet, representing the net fees a bank can expect to earn by servicing mortgages over the life of the loans.

Bowman said that banks face very high regulatory risk weights for holding MSRs, which "may hinder banks from building profitable servicing businesses."

She acknowledged that these regulations stem from "legitimate concerns," but believes adjustments should be considered.

She said, "These potential adjustments would address legitimate concerns about the structure of the mortgage market while maintaining appropriate prudential safeguards."

Editor: Liu Mingliang