One of the biggest pieces of legislation for the banking and mortgage lending industry is taking shape. Last week, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) voted for the final rule on the implementation of Basel III brought in by the Federal Reserve. This dictates the new capital requirements banks will have to adhere to, specifically in proportion to how many mortgage loans they make. Yesterday, the National Association of Realtors said that this was a positive development for Real Estate because it would enable banks to increase lending. Click Here to read article, “With Bassel III Out, A Big Win for Real Estate. While I have seen conflicting reports about whether this ruling was tougher or easier on banks in general, one thing is for sure, now that the ruling is set banks can adjust and move forward to start focusing on increasing lending again. Prior to this, the uncertainty of where these capital requirements, or leverage ratios, would land was enough to keep banks conservative and tight.
Another key component to this rule is that the capital requirements for regional and community banks are lower, which makes sense. If these banks take on too much risk and go under, the financial system can still function and absorb it, where as the largest banks and institutions are still viewed as “too big to fail”. It is possible that this will trickle down into these smaller banks being able to make loans with lower down payment requirements and overall more flexible guidelines.
My Take: Between now and the end of 2013 we should get a feel for how this ultra important ruling will affect lending and types of loans we can offer. As always, I will have a close eye on it and keep you informed. One of the reasons I enjoy being a mortgage broker (as opposed to being a direct lender or working for a large bank) is that I can offer products from banks of all sizes and add new lending relationships as the market evolves.