Recently I attended a symposium at the Federal Reserve in Boston.  The focus was to forecast economic trends in 2013, and the affect on the real estate industry.  I am writing a series of blogs from the information shared by the panel of speakers.

THE TOP 5 CHANGES IN THE MORTGAGE INDUSTRY FOR 2013

In a David Letterman-style countdown, speaker John Broderick, Sr VP of Mortgage Banking at Eastern Bank described the 5 most significant changes that will affect the mortgage industry in 2013.

#5:Basel 3

Not a new version of the garden herb...this is a town in Switzerland.  An international consortium of bankers met there in 2009 to establish worldwide industry standards to protect banks from financial catastrophe by requiring higher capital reserves. 

This sounds pretty smart, right? 

The common practice for US and worldwide banks was to keep 2% in buffer capital for every dollar of lending.

The new Basel 3 recommendation: increase the retained capital to 7%.  At present, 40% of US banks don't meet this 7% mandate.  In order to conserve capital, banks will have to restrict lending.  Clearly that is going to result in fewer loans. 

The Basel3 recommendation intended for world banks to be in full compliance by 2018.  That means a tighter credit market for the next 5 years. 

Basel 3 implementation has the likely effect of restricting lending to the housing industry, making mortgages more difficult to obtain.  It is a factor with potential to adversely affect the real estate market in 2013.