Small Banks Take Issue with CFPB Over Qualified Mortgage Rules

Nearly 50 community banks are asking the Consumer Financial Protection Bureau (CFPB) to revise lending rules for higher-priced loans, charging that current exceptions in the rules for small creditors are not broad enough and negatively impact those wanting to grow their mortgage business.

The Independent Community Bankers of America (ICBA) says the CFPB should revise the current ability-to-repay/qualified mortgage (QM) rules and escrow requirements for higher-priced mortgage loans to allow community bank loans held in portfolio for the life of the loan to receive automatic QM safe harbor status, and an exemption from the escrow requirements if the loans are higher priced. 

ICBA members’ structures and pay models are different than those of large financial institutions, says (ICBA) in a letter dated July 15 to CFPB Director Richard Cordray. Smaller institutions often serve rural communities, and say additional underwriting and escrow requirements place unnecessary regulatory burdens that stifle community banks’ ability to provide loan products to consumers.

“Community banks underwrite based on firsthand knowledge of their customers and communities, and thrive on the strength of their reputations,” the community banking representative says. “As such, community banks have every incentive to make fair, safe, and affordable loans.”

Under QM and escrow rules’ current requirements, some community banks that would be considered small financial institutions due to their asset size still do not qualify for the small creditor exemption because they exceed the loan volume threshold.

“A threshold of 500 total first lien originations per year is only 41 first lien mortgages per month, or nine per week, an amount that easily can be exceeded by a smaller creditor,” ICBA says, adding that this restriction may cause some smaller banks to stop providing loans altogether. “For many community banks, establishing and maintaining escrow accounts is expensive and impracticable and, again, will only deter lending to consumers who have no other options.”

ICBA also urges the CFPB to consider community banks’ unique structure and operating model as it evaluates the Truth in Lending Act (TILA) mortgage rules.

Read the full letter here.

Written by Cassandra Dowell

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