Federal Reserve Eyes New Mortgage Capital Requirements
New mortgage-loan requirements are anticipated for US lenders as the Federal Reserve progresses towards unveiling a bank capital proposal tied to Basel III. This upcoming measure aims to refine how banks assess and allocate capital for their residential real estate portfolios.
Michelle Bowman, the Federal Reserve's top bank regulator, stated that components of this new measure related to residential real estate would consider increasing the "risk sensitivity" of capital requirements for mortgage loans on bank balance sheets.
An approach currently under consideration involves using loan-to-value (LTV) ratios to determine the applicable risk weight for residential real estate exposures. This methodology would represent a significant departure from the existing practice of applying a uniform risk weight, moving towards a more granular and individualized risk assessment for mortgage loans.