The government should eliminate restrictions on the use of mortgage and credit card servicing assets to meet capital requirements, industry officials wrote in comment letters filed last week.
The American Bankers Association, the Mortgage Bankers Association of America, the Missouri Bankers Association, and others complained that a July plan from the federal banking and thrift agencies to double the share of these assets that a bank or thrift may count as regulatory capital is inadequate.
They also criticized a separate provision that would continue barring a bank from counting more than 90% of the value of individual mortgage and credit card servicing assets toward capital. The limitations add costs and hamper the growth of asset-backed securitizations, they argued. Servicing assets consist of income derived from administering loans that have been sold to investors.
"The proposal places banking institutions at a competitive disadvantage versus financial institutions that are not subject to the same regulations," wrote Paul V. Salfi, senior financial policy analyst at the ABA.
Similarly, most balked at the agencies' plan to continue excluding auto loans and similar nonmortgage-servicing assets from capital because regulators consider them hard to value.
"The financial asset securitization and servicing markets have matured during the past several years and are now able to reflect more accurately the value of servicing assets," wrote Joseph L. Sclafani, executive vice president and controller of Chase Manhattan Corp.
"We suggest the regulatory agencies focus on the overall risk profile of a company, rather than subject specific assets to capital limitations," wrote Robert M. O'Toole, senior staff vice president, Mortgage Bankers Association of America.
However, the Independent Bankers Association of America said the agencies would be "ill-advised" to loosen capital treatment of mortgage- servicing assets because prepayments and fluctuations in interest rates make them difficult to gauge.
"Community banks still face significant difficulties in obtaining accurate valuations for the smaller amounts of" mortgage-servicing assets they hold, wrote Tom Sheehan, chairman of the IBAA's bank operations committee.
Under the proposal, the banking and thrift agencies would double the cap-to 100% of Tier 1 capital from 50%-on the amount of mortgage-servicing assets and purchased credit card relationships that may be counted toward capital requirements. Servicing assets exceeding that limit would be deducted from Tier 1 capital.
Some suggested compromises. America's Community Bankers recommended setting the limit at 200% of Tier 1 capital and counting all mortgage and nonmortgage-servicing assets.
Regulators got 15 comment letters. Action is not expected for several months.
