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Kroll Bond Rating Agency Releases Commentary on Capital Requirements for Non-Bank Mortgage Companies

May 28, 2014



NEW YORK--(BUSINESS WIRE)-- Kroll Bond Rating Agency released commentary today on capital requirements for non-bank mortgage companies. Federal and state regulators are currently considering the imposition of capital requirements and other prudential rules on various classes of non-bank financial institutions, including insurers and mortgage servicers. KBRA examines some of the issues involving non-bank financial companies with a focus on non-bank loan mortgage originators and/or servicers (“seller/servicers”)in the context of the evolving discussion among regulators and researchers toward developing “appropriate” regulation and supervision like that traditionally applied to insured depository institutions (IDIs). KBRA believes that regulatory efforts to impose capital requirements on non-bank financial institutions such as mortgage loan seller/servicers need to consider that most non-bank financial companies operating in the mortgage space have significantly higher levels of tangible capital and lower risk-weighted assets than do IDIs, especially when considering that much of the asset base of a seller/servicer is collateralized and that the mortgages which they service typically are owned by third parties, in most cases institutional investors. The chief sources of risk for seller/servicers are operational and legal, not credit or market risk. In addition, the recent call by state and federal regulators for capital requirements for non-bank mortgage companies somewhat ignores the real point of the 2007-2009 financial crisis, namely the vulnerability of IDIs and non-banks which perform bank-like functions to a sudden decline in investor confidence and a related drop in market liquidity. Lastly, since non-banks in the US are already dependent upon the commercial banking system for short-term funding and are effectively prohibited from capitalizing their asset and maturity transformation activities in the short-term debt capital markets (e.g., commercial paper), it is unclear why capital requirements for non-banks are appropriate.

To view the report, please visit www.krollbondratings.com.

About Kroll Bond Rating Agency

KBRA is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (NRSRO). In addition, KBRA is recognized by the National Association of Insurance Commissioners (NAIC) as a Credit Rating Provider (CRP).



Analytical:

Kroll Bond Rating Agency

Christopher Whalen, 646-731-2366

cwhalen@kbra.com

or

Marjan Riggi, 646-731-2354

mriggi@kbra.com


Source: Kroll Bond Rating Agency


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