July 20th, 2023 7:00am PDT
(PenniesToSave.com) – In the coming week, U.S. bank regulators are expected to unveil their proposal for a substantial restructuring of capital regulations. This update, known as Basel III, seeks to bring the U.S. in line with international standards in response to the financial crisis.
The changes will affect residential mortgages of major lenders and go beyond what other countries have implemented. The U.S. Federal Reserve, along with the Federal Deposit Insurance Corp (FDIC) and the Office of the Comptroller of the Currency (OCC), are expected to release further details on July 27th.
To address the fallout from the 2007-2009 financial crisis, the Basel Committee on Banking Supervision has formulated global capital standards. The suggested measures are a part of this effort.
It’s important to mention that although the Basel rules have been in place for years, the U.S. regulations to adhere to them are being crafted with the recent banking crisis in mind. This crisis resulted in the failure of Silicon Valley Bank and two other financial institutions.
Michael Barr, the Vice Chair for Supervision at the Fed, is leading this proposal. Known for his strong and focused approach, he aims to address issues specifically on Wall Street.
What Does This Mean to the Average Home Owner or Potential Buyer?
When a mandate surpasses global standards, it indicates that the regulations imposed on US banks regarding residential mortgages are more rigorous and stringent than the minimum requirements established by international norms or agreements. These mandates cover various aspects of the mortgage lending process, including eligibility criteria, loan terms, underwriting standards, risk assessment, and consumer protection measures.
For the average homeowner, these stricter mandates could have both positive and negative implications:
Positive Implications
- Improved Consumer Protection: Implementing stricter regulations can provide enhanced safeguards for borrowers, ensuring they are treated fairly and receive clear and transparent lending practices.
- Less Risk: If banks face stricter lending requirements, they are likely to be more cautious when approving mortgages. This caution can help reduce the chances of defaults and foreclosures.
Negative Implications
- More stringent requirements for eligibility may pose challenges for certain individuals seeking a mortgage, especially those with lower income or marginal credit.
- Increased Costs: Lenders could potentially transfer the expenses associated with compliance to borrowers, resulting in higher interest rates or additional fees on mortgages.
- Limited product variety: Banks may prioritize offering standardized mortgage products that comply with strict regulatory requirements, which could limit the availability of specialized mortgage options.
It’s worth mentioning that the actual impact on individual homeowners will vary depending on the specific details of the mandates and how banks and the overall housing market respond to these changes. The ultimate goal of such mandates is to improve the stability and resilience of the mortgage market and safeguard consumers from risky lending practices. However, it’s also possible that certain groups within the population might encounter difficulties in securing mortgage financing due to heightened regulatory requirements.