Washington, D.C. (Jan. 10, 2013)—Karen Thomas, senior executive vice president of government relations and public policy for the Independent Community Bankers of America (ICBA), testified today during the Consumer Financial Protection Bureau’s (CFPB) field hearing on mortgage policy in Baltimore, Md. Thomas’ testimony comes on the day that the CFPB released its final rule on consumers’ ability to repay mortgage loans—provisions known as the “qualified mortgage” rule. Included below are Thomas’ remarks.
Director Cordray, thank you for convening today’s field hearing on mortgage policy. I’m pleased to present the views of our nation’s 7,000 community banks.
Community banks play an important role in our nation’s economy and in mortgage finance. As locally owned and operated institutions, they have strong ties to their communities and their customers. In many small towns and rural communities across the country, the local community bank is the only reliable source of credit for home purchases.
Community banks have a vested interest in the economic well-being of their customers and communities. Their business model is relationship based, not transaction based. They did not engage in the lending and servicing practices that contributed to the recent financial and foreclosure crises. They are responsible, common sense mortgage lenders. The low default rates for mortgages originated by community banks bear this out.
ICBA understands the intent of Congress and the CFPB to prevent mortgage abuses from occurring in the future, and to stabilize the housing market. Nevertheless, we are concerned that the plethora of regulatory changes in consumer mortgage policy could further stymie the housing market and community banks’ ability to provide mortgage loans to their customers.
For this reason, we have urged the CFPB and other regulators to tailor the rules so they don’t inhibit community banks’ ability to provide mortgages to their customers.
Many community bank mortgage loans are held in portfolio and are not sold on the secondary market. The banks have a vested interest in how the loans perform. Therefore the underwriting for these loans has historically been more conservative.
Many of these loans are not the cookie-cutter loans found in the suburban and urban markets. They are made to borrowers who cannot qualify for a secondary market loan, not because they don’t have the ability to repay, but because their properties are unique—maybe a large parcel, or one with outbuildings that don’t qualify for the secondary market. Community banks are especially adept at making such loans because the bankers know their customers and have extensive knowledge of the housing market in their local community.
The standards and definitions set in the qualified mortgage/ability to repay rule will have far-reaching impact in the mortgage market. Borrowers on the “wrong side” of the QM either will not able to get the mortgage they want, or will pay considerably more for it.
Many community banks would cease or significantly curtail mortgage lending if there were only a rebuttable presumption of compliance for qualified mortgages. They simply would not be able to absorb the compliance and litigation risk.
Therefore, ICBA has strongly advocated that the rule provide a safe harbor for loans deemed to be qualified mortgages. We have also urged that community bank mortgage loans held in portfolio and serviced for the life of the loan receive this legal safe harbor.
We are pleased that the bureau recognized these concerns in crafting the final rule and the proposed amendments. We believe the safe harbor for qualified mortgages, which includes rural balloon payment mortgages, will enable the nation’s community banks to continue to serve their clients and communities while providing safe, sound and affordable mortgage credit. We look forward to working with the bureau as the rulemaking process moves forward.
ICBA recognizes that mortgage finance is now at a crossroads. We urge policymakers to continue to take the path that will enable community banks to provide mortgage loans to their customers so that these consumers, too, can achieve home ownership.
The Independent Community Bankers of America®, the nation’s voice for more than 7,000 community banks of all sizes and charter types, is dedicated exclusively to representing the interests of the community banking industry and its membership through effective advocacy, best-in-class education and high-quality products and services. For more information, visit www.icba.org.