Big banks face stricter residential mortgage capital rules

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1. Big banks face stricter residential mortgage capital rules

U.S. bank regulators are set to release their plans next week for a sweeping overhaul of capital rules, with the latest draft including requirements for large lenders’ residential mortgages that go beyond international standards.

The move, part of the U.S. implementation of Basel III international banking standards, imposes stricter conditions than the global norm. Regulators aim to prevent larger banks from gaining a competitive advantage over smaller ones by treating similar residential loans the same across different-sized banks.

The overhaul could increase the overall capital requirements by 20% for large banks. Some critics in the banking industry argue these changes are excessive and could increase borrowing costs for consumers. LINK

2. Homebuilder confidence highest since June 2022

U.S. homebuilder sentiment rose in July to the highest level in 13 months as buyers continued to opt for new construction amid a tight housing supply.

The National Association of Home Builders/Wells Fargo gauge increased for a seventh straight month, to 56 from 55 in June. The figure matched the median estimate in a Bloomberg survey of economists.

The use of incentives to attract buyers declined, with the share of builders reducing home prices falling to 22% in July from 25% in June. Sentiment increased in the Northeast and West regions while moderating in the Midwest and the South.

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3. More Nuggets

🏠 Angelo Mozilo, head of Countrywide, the giant mortgage lender and player in the 2008 financial crisis, is dead at 84. (CNN)

🤝 ICE and Black Knight agree to sell Optimal Blue in hopes of winning merger approval. (Pedia)

🏦 Higher mortgage rates have made cash-out refinancing less attractive and pushed more people to take out home equity lines of credit. (Bloomberg)

📉 The odds of a U.S. recession are falling, economists say, as inflation tumbles without the big rise in unemployment many expected. (Axios)

4. Fed’s Barr: Opportunities, biases, and risks of A.I.

Fed Vice Chair, Michael Barr, expressed concerns about potential discriminatory practices in mortgage lending driven by artificial intelligence.

While acknowledging that A.I. could enhance credit accessibility for those lacking in credit scores (by capturing a wider array of information than what traditional credit rating agencies consider), Barr warned that A.I. could amplify biases and direct some borrowers towards substandard financial products.

He urged for transparency in A.I. models and stressed the Federal Reserve's duty to regulate technological advancements under the Fair Housing Act and Equal Credit Opportunity Act. LINK

5. Where price reductions will and won’t happen

Morningstar, one of the leading investment research firms, recently published a paper identifying the riskiest and least riskiest markets for a price reduction.

According to their research, here are the ten most at-risk and ten least at-risk housing markets. You can read more about their research here.

6. One fun thing: What side are you on?

☀️ See you on Friday!

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