MilePost: Basel flattens credit risk field, S&P sees corporate risk rising, housing stays hot, mortgage lending eases

Banking: Basel proposal levels the playing field for banks taking credit risk
Banks may lose some freedom to set the amount of capital needed for taking credit risk under a proposal unveiled today by the Basel Committee on Banking Supervision. The proposal would stop banks from using internal capital models when taking risk on banks, insurers and other financial institutions, large corporations, equities, specialized lending and counterparty credit. Banks instead would have to use a standardized approach set by regulators. For exposures to smaller corporations or retail borrowers where banks could still to use internal models, today's proposal would set a minimum on capital. Basel said the proposal would reduce the differences in capital held from one bank to another against similar loans. Basel plans to take comments on today's proposal by June 24 and finalize rules by the end of 2016. (Milepost)

Markets: Average US corporate rating drops to a 15-year low 
The average rating of a U.S. nonfinancial corporate borrower has dropped to a 15-year low, according to a report released by S&P Thursday, a sign that defaults could spike as the U.S. corporate credit cycle peaks. S&P's 'BB' rating on the average U.S. corporate borrower in 2015 fell below the average recorded after the 2008-2009 credit crisis. QE and low interest rates helped companies across the credit spectrum borrow at attractive pricing and terms in the capital markets, feeding a boom in issuance of speculative grade debt. "Corporate default rates could increase over the next few years," wrote S&P, "especially given the diminished growth prospects in China, the weak commodity and energy prices globally, the looming increases in domestic borrowing costs, and the sizable universe of lower-quality nonfinancial corporate debt outstanding."(S&P)

Economy: Hot housing 
The price of housing is exceeding the reach of local buyers in more markets. RealtyTrac’s 1Q16 Home Affordability Index showed this week that 9% of U.S. county housing markets were less affordable than their historic norms, up from 2% a year ago. Home prices outpaced wage growth in 61% of counties analyzed. Denver, New York, Omaha, and Austin came in as least affordable. The average US earner would need to spend 30.2% of monthly wages on mortgage payments, up from 26.4% a year ago. (RealtyTrac, S&P, Milepost)

Economy/banking: A little loosening in mortgage credit, a little selling of MSRs
More lenders plan to ease rather than tighten mortgage underwriting standards in the next three months, but the pace of easing is going down. That's the picture painted by Fannie Mae's 1Q16 Mortgage Lender Sentiment Survey released Wednesday. A net 7% of lenders plan to ease, down from 8% in 4Q15 and down from its peak in 3Q15. The survey also found that more lenders plan to increase the share of their MSRs sold to a third party, with a notable increase in mid-sized institutions planning to sell. (Fannie Mae, Milepost). 

Banking: higher costs but more borrower satisfaction with TRID
TRID has raised mortgage back office fulfillment and post-closing costs by an average of $209 per loan since the Know-Before-You-Owe rule kicked in last October, and lenders can only recover about 17% of those costs through added fees. But borrowers seem to like the new process. “TRID seems to be associated with a significant pickup in borrower satisfaction, despite somewhat slower application-to-closing times," according to STRATMOR Group’s Matthew Lind, who helped survey lenders and borrowers through the group's MortgageSAT Borrower Satisfaction Program. "Overall borrower satisfaction with the origination process now stands at 91 percent, a record high since MortgageSAT was launched in 2013.” (HousingWire, S&P, Milepost)