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ASF panelists: Basel III to challenge RMBS market

Analysts attending the American Securitization Forum in Law Vegas warned Sunday that Basel III will have a negative impact on the securitization market. 

Partner Jerome Walker at SNR Denton and Garrett Ahitow, executive director of regulatory capital management at JPMorgan Chase (JPM), said Basel III will eventually impact borrowers in the form of higher costs for credit access.

Under current rules, residential mortgages generally receive identical capital treatment. But, under the proposed rules, riskier loans would further restrict capital, harming potential homebuyers with less-than-pristine credit by either having them pay more for a risky loan or end up without one at all.

Similarly, Citigroup (C) cautioned that Basel III rules for capital reserves at financial companies may lead to a reshaping in bank investments, specifically the risk of long-date Treasuries and mortgage-backed securities falling by the wayside. 

"The elimination of the filter will create inaccurate reports of actual capital strength; it will mean that capital will look like it is increasing as interest rates fall and decreasing as interest rates rise – but neither result will reflect reality," said James Garnett, head of risk architecture at Citi.

Other deductions that loom include mortgage servicing rights. Underneath the implemented rules, MSRs are no longer as valuable in Tier I capital as they used to be, the analysts noted. 

The exact date for the Basel III rule's release is still unknown.

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