“Piecemeal regulation” under Dodd-Frank is, and will continue to be, so costly and unsustainable that community banks must examine whether they can continue to offer certain products and services – particularly in the mortgage lending area.
That’s one of the key points in an Aug. 12, 2011, letter from American Bankers Association President and CEO Frank Keating to Raj Date, acting head of the Consumer Financial Protection Bureau.
ABA outlined three recommendations that would help community bankers better deal with regulatory burdens:
- Develop a comprehensive agenda on when mortgage-related rules will be proposed, finalized and implemented. “A properly structured schedule … would greatly assist banks to understand the costs and resource commitments they should expect, and the product and organizational restructuring they may need to undertake,” ABA writes.
- Ensure a timely review of comments provided on the ability to repay rule and the Qualified Mortgage (QM) safe harbor. The rulemaking process will help determine the boundaries for another rule, the Credit Risk Retention/Qualified Residential Mortgage rule.
- Clarify issues in the recently finalized Truth in Lending Act rules. The Reg Z changes that govern compensation for mortgage loan originators have been difficult to decipher, ABA explains. “Bank examiners are taking the rigid position that year-end bonus payments or contributions to 401k plans are rendered illegal if they are related to overall bank profit,” the letter states. “This stance is not only overly severe, but it also forces banks into great compliance difficulties with ERISA-related Federal laws that prohibit employer funding levels that are different for different classes of employees.”
Rod Alba, ABA vice president – mortgage finance and senior regulatory counsel, spoke about Truth in Lending developments as a panelist earlier this month at an American Bar Association conference in Toronto. CFPB’s lead rule writer, Len Chanin, also spoke on the panel. He expressed the viewpoint that the Qualified Mortgage rule, as proposed, will drastically limit lending.
“Bank members tell us they will not lend outside of the QM exemption,” Alba told CFPB Journal. “All lenders, all banks, will seek to lend only within the QM, and the reason is that there is so much liability. Congress intended this special exemption for real, real safe loans that had tight underwriting – but everyone is going to want to be within it. The consequences are going to be severe.”
Because the Federal Reserve proposed the QM rule before it was transferred to the CFPB, Alba believes the rule could be re-written and re-issued. “These are unusual circumstances, with the whole statutory authority moving over to the new Bureau,” he said. “The Bureau needs to do a careful analysis of the economic impact of this rule.”
The increasingly onerous business of making a mortgage loan is an issue even the mainstream media has begun to pick up on. An Aug. 15, 2011, USA Today article leads with an example from the $237 million City State Bank in Norwalk, Iowa. Last year, reviewing the bank’s 455 home loan applications took compliance officer Alesia Harlan more than two months.