Limit Riskier Lending: Fitch
Proposals found in Basel III to raise capital requirements for mortgage loans would increase borrower costs for traditional mortgages and make nontraditional mortgages less available at regulated banks, according to a commentary from Fitch Ratings.
“U.S. regulators’ ‘notice of proposed rulemaking’ (NPR) addressing capital requirements and risk-weighted asset (RWA) calculation criteria would, if adopted, ultimately push banks away from all but the most conventional and low risk forms of mortgage lending,” Fitch stated.
“U.S. regulators’ ‘notice of proposed rulemaking’ (NPR) addressing capital requirements and risk-weighted asset (RWA) calculation criteria would, if adopted, ultimately push banks away from all but the most conventional and low risk forms of mortgage lending,” Fitch stated.
Nontraditional loans that carry higher risks fall under Category 2, while traditional loans are in Category 1. Under the NRP, Category 2 loans, such as negative amortization mortgages, loans with a balloon payment, loans lacking verification of a borrower’s ability to repay, loans that take more than 30 years to mature, require banks to hold two to three times more capital, Fitch explained. Read more
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