Bankers: Avalanche of Mortgage Rules Make Lending Too Tough

Although community banks have the capital to drive economic growth, nearly three-quarters say new mortgage rules are keeping them from making more residential mortgages in their communities, according to a recent survey by the Independent Community Bankers of America (ICBA).

The 2014 Community Bank Lending Survey, released Tuesday, found that community banks want to continue lending, but the “avalanche of new regulations” coming down from Washington is having a negative impact on their lending and consumer choice.

“ICBA’s 2014 Community Bank Lending Survey validates what community banks have long predicted—that new restrictions on mortgage lending are reducing much-needed access to mortgage credit for many Americans,” said ICBA President and CEO Camden Fine.


Of the total 519 community banks who responded to the survey, 73% cited regulatory burdens are preventing them from making more residential mortgages. Specifically, a majority of banks (57%) reported tighter underwriting in residential mortgage lending and many reported decreases in originations (44%).

These institutions also claim that exemptions from the Consumer Financial Protection Bureau’s Qualified Mortgage (QM) rule for small and rural creditors are “too narrow.”

Though they meet the rule’s asset threshold test of $2 billion or less, two-thirds (66%) of banks with $500 million to $2 billion in assets make too many loans—more than 500 a year—to qualify for such exemptions.

Just 25% of community bankers said they are providing loans that do not fit the CFPB’s QM definition, showing that the new restrictions have shrunk the credit box and taken away lender discretion in granting credit, ICBA said in a written statement.

Advocating on behalf of community bankers, ICBA recently released a Plan for Prosperity for the 114th Congress. The Plan includes several provisions that would reform how the CFPB’s mortgage rules apply to community banks, with the overall intent to promote sound lending and prevent declining access to mortgage credit for consumers.

“For instance, the Plan for Prosperity would offer relief for loans held in portfolio because community bank lenders have a direct stake in ensuring the performance of these loans through proper underwriting and affordability,” ICBA stated.

Additionally, the Plan also addresses new regulations on escrow, appraisals and mortgage servicing rights, offering reforms that ICBA believes would preserve community bank participation in mortgage lending.

“The results show that Congress should act quickly on ICBA’s Plan for Prosperity legislative platform, which would implement common-sense reforms to support continued access to credit without compromising consumer protection or safety and soundness,” Fine said.

Written by Jason Oliva

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  • Why should there be an exception for loans held in portfolio? If the bank went under and someone had to step in and takeover the portfolio, one wonders if the new owner could justify the parameters used in loan qualification. As exceptions expand, rules are diluted. Maybe some exceptions are needed in this case but since all real estate is local, a national exception seems inappropriate.

  • The rules and regulations continually being handed down by the CFPB and other agencies are smothering, especially small community banks.

    It almost appears like the Federal Government wants to see small banks fail, in fact, the Federal Government is doing a darn good job accomplishing just that!

    The large banks are now starting to feel it as well, it has become a nightmare for the entire banking and lending industry. I feel most of us are losing tract of which rule or regulation we need to be following?

    The _ Cynic questions why there should bean exception for loans held in portfolio. That is a great question, however, there is no need for this exception. The whole methodology behind all of the rules and regulations being pumped out like bullets out of a machine Gun is one of the biggest farces perpetrated on the banking, the lending industry and the American people!!!!

    John A. Smaldone

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