The Independent Community Bankers of America (ICBA) and a coalition of 45 state and regional banking associations urged the Consumer Financial Protection Bureau (CFPB) to expand exceptions for small creditors under new mortgage rules to ensure community banks can continue to meet their communities’ mortgage needs. In a joint letter, the organizations called on the CFPB to allow community bank loans held in portfolio for the life of the loan to automatically receive qualified mortgage safe harbor status and an exemption from escrow requirements for higher-priced mortgage loans.
ICBA and the other organizations noted that because community banks conduct their business based on firsthand knowledge of their customers and communities, they have every incentive to make fair, safe and affordable loans. Further, community banks have a vested interest in the performance of loans that are held in portfolio, which is why the CFPB should expand small-creditor exceptions in the new mortgage regulations.
“Community banks operate under a completely different business model than that of the larger financial institutions and mortgage companies,” the coalition wrote. “Additional underwriting and escrow requirements only function as unnecessary regulatory burdens that stifle community banks’ ability to provide solid loan products to consumers so they can achieve the American dream of home ownership.”
To qualify for the small-creditor exception under the CFPB’s current ability-to-repay regulations, creditors and their affiliates must have originated 500 or fewer covered transactions secured by a first lien in the preceding calendar year and had total assets of less than $2 billion at the end of the preceding calendar year. As a result, many main street community banks would be considered small financial institutions due to their asset size but still would not qualify for the exemption because they exceed the loan-volume threshold. Further, new requirements that community banks establish escrow accounts for higher-priced mortgage loans needlessly impose new costs that would only deter lending to consumers.
In their letter to the CFPB, ICBA and the other organizations called for an expanded small-creditor exemption from these new regulations to ensure the rules fit the community banking model and to avoid curtailing access to credit in communities across the nation.