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Community Banks Edgy About New Regulations: Survey

Consumers may rejoice to hear about increased banking regulations, but community bankers don't feel the same way.


A study released Thursday by ""Ellie Mae"":http://www.elliemae.com/ found that community bankers see increasing regulations as the biggest immediate challenge to their mortgage businesses.

The survey group was made up of 34 banks, both clients and non-clients of Ellie Mae. The study examined the ways that community banks approach the consumer banking and mortgage markets, as well as the effects of market conditions on these banks.

More than half of community bank executives (51 percent) said that handling changing compliance standards is the most significant challenge for their banks. They specifically spoke of regulations created by the Dodd-Frank Act and the ""Consumer Financial Protection Bureau"":http://www.consumerfinance.gov/ (CFPB).

Smaller community banks tended to see compliance as a staffing issue, while larger community banks expected new regulations to negatively impact their service.

One banker expressed concerns that customers may switch to larger banks that are better equipped to deal with compliance requirements.

""Regulation is becoming a big issue, and you'll see people exiting smaller community banks,"" the banker said. ""It has become overwhelming for smaller players that were only able to do a handful of deals a month. Business might flow to larger-size banks. As people get used to the regulations, they might re-enter the business, or they might not.""

Another banker said that if smaller community banks cannot grow their mortgage divisions, the cost of compliance will lead to unprofitability.

The survey also questioned bankers on their concerns over competition, technology, organization, and customer service.


Fifty-three percent of community banks said larger money center banks are their primary competitors in the mortgage sector. Another 38 percent cited other community banks as their chief competition, while 15 percent said they compete mostly with credit unions.

While some bankers expressed that it is difficult to compete with the market presence and name awareness of larger banks, others said that community banks have the advantage when it comes to customer service.

""I see customers that are wanting to get away from large banks,"" one banker said. ""They prefer customer service. They want to be able to talk to someone, not an automated call center.""

In spite of changes and improvements made since the market crash, two-thirds of community bankers said their relationships with customers have changed. One-third of respondents said online banking has helped to provide better customer service, while a nearly equal amount said it has had no impact.

The survey found that smaller banks are more likely to communicate with customers in person, while large community banks use online communications more frequently.

Nearly all of the participating bankers said they believe technology is critical in the mortgage process and helps both compliance and customer service. In smaller banks, the selection of a technology provider focuses more on user friendliness, whereas larger banks select vendors based on efficiency improvement.

Most community bankers surveyed said they view their mortgage operations as an extension of the bank, but respondents were split evenly on whether the operation is managed separately or worked into the parent bank's management structure. The size of the bank did not seem to be a factor in how its mortgage operations were organized.

Ellie Mae COO Jonathan Corr said the survey provides valuable insight into the unique challenges community banks must deal with.

""Handling the regulatory, market, and technology challenges is something all banks, from multinational entities to small community banks, are facing,"" Corr said. ""However, gaining insight into how community banks view these challenges and how larger, mid-sized, and smaller banks within this segment perceive these challenges is vital for any company that provides services to this market.""

Ellie Mae announced it will hold a complimentary webinar to examine the study on Aug. 20 at 2:30 p.m. (EDT).


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