On June 7, 2012, the Federal Reserve Board of Governors unanimously approved the release of three Notices of Proposed Rulemaking (NPRs) for Basel III and the final rule for Basel 2.5.
Banking and Consumer Regulatory Policy – NEWS
The approach for calculating risk weighted assets makes residential mortgages more risk-sensitive. Under the NFP, residential mortgages are divided into two categories and the risk weights would depend heavily on LTV and would range from 35%-200%. The new proposed capital rule does not recognize PMI for determining the capital required for residential mortgages. Therefore, a first time home buyer who can come up with 5% cash and obtains mortgage insurance for 20% of the loan will be considered as having a 95% loan for capital purposes resulting in a more expensive loan. Basel Capital Standards – National Association of Realtors (NAR)
Basel 2.5: US Market Risk Final Rule, by Ernst & Young
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