Basel III set to boost US mortgage securitisation

Author: Danielle Myles | Published: 14 Jul 2011

Restrictions on the capital-eligibility of mortgage servicing rights (MSR) under Basel III could bolster the US securitisation market, and lead to the development of a new servicing charges asset class.

The tough treatment of MSRs under the new Basel framework is one aspect of the rules that disproportionally impacts US banks. The change is expected to have minimal impact in Europe, but over $100 billion of MSR is estimated to be held by US banks.

MSRs’ contribution to tier one capital will be capped at 10%. When combined with deferred tax assets and financial holdings, that figure cannot exceed 15%. Under rules in place now, up to 90% of a bank’s MSR value can qualify for tier one capital.

While the tightening capital definitions will be burdensome, the new restriction is expected to provoke changes in the way mortgage securitisation works.

"The bottom line...