Basel III Redux

Basel III was first introduced in 2010/2011, modified in January 2013 and finalized in July 2013. Basel III calls for banks to hold additional minimum capital and addresses liquidity concerns as well. Banks and savings-and-loans that have mortgage servicing assets on their balance sheet will have to hold substantially more capital against this asset than they did prior to the Basel III implementation. Basel III will have a negative impact on the financial dynamics of mortgage servicing rights. People must operate their institutions in a safe and sound manner, but if they charge more for higher-risk loans, they may be subject to disparate impact suits. The implementation of Basel III in the US needs to properly reflect the idiosyncrasies of the US real estate finance industry and allow for a relationship between risk and return that is consistent with market perceptions of the economic dynamics of our industry.