Michelle W. Bowman
Vice Chair for Supervision, Federal Reserve
Analysis
Bowman's speech reflects a balanced regulatory posture that acknowledges competing policy objectives without advocating aggressive tightening or loosening. She recognizes that prudential regulations on mortgage capital treatment—while implemented "for sound reasons"—may be "over calibrated" and disproportionate to actual risks, yet simultaneously flags concerns about nonbank servicer vulnerabilities and borrower outcomes during financial stress, suggesting regulators must carefully recalibrate rather than wholesale deregulate. This dual recognition of regulatory excess on one hand and systemic stability risks on the other exemplifies a centrist approach: acknowledging the need for reform while maintaining safeguards against financial instability.
Key Passages
"For Financial Stability: Nonbank servicers face other vulnerabilities, as described in a recent report issued by the Financial Stability Oversight Council."
"In addition, borrowers that experience financial distress seem to fare worse during financial downturns with nonbank servicers."
"First, most banks experienced modest to moderate increases in their risk weights for MSRs, depending on how the banks accounted for the MSRs on their balance sheets."
"Reconsidering the Balance At the time, regulators tightened MSR capital treatment for sound reasons."
"Further, the risk of a mortgage default decreases over time as the principal is paid down and the mortgage migrates to lower LTV buckets."