ICBA Policy Resolution: Mortgage Lending Regulation

Position

  • Efforts to protect consumers from abusive lending practices should not prohibit responsible, though unconventional, loan products created to meet the diverse needs of consumers, including lower-income borrowers, borrowers in rural and underserved communities, and first-time homebuyers.
  • ICBA is encourage by recent proposals from the regulatory agencies to increase the threshold for the use of property evaluations for loans retained in portfolio. ICBA also supports efforts by the appraisal industry to ensure sufficient access to appraisers, particularly in rural areas.
  • Ability to repay (“qualified mortgage”), Home Mortgage Disclosure Act (HMDA), escrow rules, and appraisal requirements have been significantly improved through legislative and regulatory action. These changes will help make mortgage lending more attractive to community banks.
  • ICBA strongly encourages the CFPB to continue to collaborate with ICBA and other stakeholders to take a commonsense approach to amending TILA/RESPA Integrated Disclosure (TRID) rules, including certain tolerances and timelines. Consumers should be allowed to waive the 3-day waiting period between receipt of the final closing disclosure and consummation. ICBA urges the CFPB to address compliance questions through written, authoritative guidance and FAQs.
  • The CFPB’s “small servicer” exemption limit should be increased from 5,000 loans to the higher of 30,000 loans serviced or $5 billion in total unpaid principal balance of mortgages serviced. Moreover, to be fully beneficial, an increase in the limit must be accompanied by corresponding relief from the punitive capital treatment of mortgage servicing assets (MSAs) under Basel III. ICBA continues to call for a complete exemption from Basel III for all community banks.
  • The CFPB should address servicing issues such as the prohibition on initiating foreclosure actions on uncooperative borrowers for loans that are perpetually 90-days delinquent.
  • ICBA strongly supports the provision of S. 2155 exempting certain institutions from collecting and reporting expanded HMDA data fields. ICBA will continue to work with the CFPB as it re- proposes parts of the HMDA rule to expand relief from collecting and reporting all HMDA data for smaller institutions.
  • ICBA is encourage by recent proposals from the regulatory agencies to increase the threshold for the use of property evaluations for loans retained in portfolio. ICBA also supports efforts by the appraisal industry to ensure sufficient access to appraisers, particularly in rural areas

Background

Community Banks Are Responsible Lenders

As relationship lenders who underwrite based on firsthand knowledge of their customers and communities and who thrive based on the strength of their reputations, community banks have every incentive to make fair, commonsense, and affordable loans. They do not need prescriptive regulations to compel them to do so. 

Portfolio Mortgage Lending Should be Exempt from Onerous Regulatory Requirements

ICBA applauds recent legislation that expanded safe harbor QM status for loans held in portfolio by community banks with assets of up to $10 billion. This legislation also provided relief from mandatory escrow requirements for institutions with $3 billion in assets or less. Mandatory escrow requirements raise the cost of credit for borrowers who can least afford it and impose additional, unnecessary compliance costs on community bank lenders.

Small Servicer Exemption Limit Must Be Increased

To preserve the role of community banks in mortgage servicing, where consolidation has clearly harmed borrowers, the CFPB’s small servicer exemption limit should be increased from 5,000 loans to 30,000 loans or a maximum principal balance of $5 billion in mortgages serviced. New regulation has approximately doubled the cost of servicing with a direct impact on the consumer cost of mortgage credit. Community banks above the 5,000-loan limit have a proven record of strong, personalized servicing and no record of abusive practices. To put the 30,000-loan limit in perspective, the five largest servicers service an average portfolio of 6.8 million loans each and employ as many as 10,000 people each in their servicing departments. The top five mortgage servicers each have more than $300 billion in unpaid principal balance on mortgages serviced. The full benefit of increasing the small servicer exemption limit cannot be realized without corresponding relief from the punitive capital treatment of mortgage servicing assets (MSAs) under Basel III. (See resolution titled “The Community Bank Leverage Ratio and Regulatory Capital” for more detail.)

Staff Contacts: Ron Haynie and Rhonda Thomas-Whitley

Register for Capital Summit

2019 National Community Bank Service Awards