Manatt Partner Speaks to Daily Journal on Banks' Basel III Preparation
"Banks Unload Rights to Service Mortgages"
March 28, 2013 - Manatt's Ellen Marshall, a partner in the firm's Financial Services & Banking Practice, spoke to the Daily Journal about how banks are preparing for the Basel III implementation.
The Daily Journal reports that Basel III, the latest standard from the Basel Committee on Banking Supervision, would require banks to set aside additional capital for mortgage servicing rights. The change would be fully implemented by 2019. In anticipation, United States banks have increasingly been selling their rights, rather than planning to increase capital.
"Potentially, the Basel III regime could be a game changer in terms of who wants to hold these instruments," said Marshall, who has advised companies originating and servicing loans. "U.S. banks tend to have more MSRs on their books" than do foreign banks.
In addition to Basel III's impact, combined low interest rates and housing prices create a 'perfect storm' of buying and selling mortgage servicing rights space. Banks are eager to get these assets off their balance sheets, and hedge funds "may be making a play based on where they think the market will move in the next six to 18 months," said Marshall.
Marshall added that buyers of mortgage servicing rights are betting that the loans will remain outstanding for longer rather than shorter periods of time - essentially a bet that interest rates will go up and borrowers will not refinance.