One of the more nagging ripples of post-crisis reform is the amount of regulations laid upon the shoulders of financial institutions. Akin to the sweeping post-9/11 security reforms that banks now implement, cumbersome new regulations for lending are proving costly to small banks, which are having trouble competing with large institutions due to expensive compliance costs.
To combat this, the 45-member Independent Community Bankers of America [1] (ICBA) coalition submitted a letter [2] to the Consumer Financial Protection Bureau [3] asking the agency to expand the small creditor exemptions set out under its mortgage rules [4]that went into effect in January.
ICBA's main request is that mortgage loans held in small creditors' portfolios automatically receive qualified mortgage safe harbor status for as long as the loans are held in those portfolios.
ICBA also wants a small creditor exemption from escrow requirements for higher-priced mortgage loans held in portfolio. Small banks, even beyond the scope of the ICBA letter, have roundly complained that current rules covering escrow and qualified mortgages make it too cumbersome and expensive to originate loans to certain consumers.
Under current rules, small creditors are exempt if they originate 500 or fewer first-lien mortgages in the preceding calendar year and have less than $2 billion in total assets at the end of the preceding calendar year. However, many community banks originate more than 500 loans annually, and ICBA believes the loan threshold to be far too low.
The main thrust of ICBA's argument is that community banks, by virtue of more personalized customer service and a preference to underwrite loans based on personal relationships rather than faceless financial data, simply operate differently than large creditors and should not, therefore, be held to the same rules where those rules cover how business is conducted. Many community bank customers—whom ICBA calls "the underserved"—would be unable to get loans through traditional channels at larger institutions, the letter argues.
ICBA states that there must be "a cleaner approach that adheres to the mission of the CFPB and the intent of the mortgage rules."