Banks Required to Carry More Cash Capital Will Increase Rates

[Caroline Gerardo]

Basel III requires bank lenders to hold greater reserves. What does this mean to you as investor? Price increases. The cost to carry cash for banks to appear solvent will be passed on to you as a consumer. The interest rate and points investors will pay for mortgage loans will increase.

https://www.americanbanker.com...

(first article is free I didn't write this one.)

It means you need to have a mortgage broker in your phone contacts for every state you own property. Shopping for a loan will be more complex.

[Chris Seveney]

Quote from @Scott Johnson:

Quote from @Caroline Gerardo:

Basel III requires bank lenders to hold greater reserves. What does this mean to you as investor? Price increases. The cost to carry cash for banks to appear solvent will be passed on to you as a consumer. The interest rate and points investors will pay for mortgage loans will increase.

https://www.americanbanker.com...

(first article is free I didn't write this one.)

It means you need to have a mortgage broker in your phone contacts for every state you own property. Shopping for a loan will be more complex.

 Thanks, Caroline!

1) Can you elaborate a bit more on the economics of the increased bank reserves? Does being require to hold more reserves simply mean "they're not going to lend as much" or "tighten their lending policies"? 

2) If that is the case, are the interest rates a secondary, automatic result of free market lending (I use 'free market' very lightly), or are banks consciously going to increase their interest rates to deter lending so they can meet their reserve requirements?

3) Is this going to increase the complexity because the investor now has to scour the lenders for a loan that'll meet their needs? 

4) Do we need a lender in each state that we invest in because banks, due to tightening lending, will be less likely top underwrite a loan that's out of state, or is there specific state regulations that you're seeing that will complicate the lending process even more?

Thanks!

 Here is a great link explaining this.

1. Banks when they lend have to adjust the risk profile of the assets, which means they will lend less and increase rates (as they are not going to be adding equity)

2. See above

3. Reality is banks only supply about 35% of mortgages today. I believe Wells already left the mortgage market. Mortgages will continue to be funded by non bank entities due to compliance but also means markets could be at greater risk.

4. See #3. 

PowerPoint Presentation (fdic.gov)