Community banks want to lend more to drive economic growth in their communities, and they have the capital to do so.
However, a new survey by the Independent Community Bankers of America® (ICBA) found that approximately three-quarters of community bank respondents said new mortgage regulations are keeping them from making more residential mortgage loans in their communities.
“ICBA’s 2014 Community Bank Lending Survey validates what community banks have long predicted—that new restrictions on mortgage lending are reducing much-needed access to mortgage credit for many Americans,” ICBA President and CEO Camden R. Fine said.
“The results show that Congress should act quickly on ICBA’s Plan for Prosperity legislative platform, which would implement common-sense reforms to support continued access to credit without compromising consumer protection or safety and soundness.”
The 2014 Community Bank Lending Survey found that community banks want to continue lending, with most community banks serving as full-service lenders and reporting a positive outlook toward most lending areas. However, the survey also shows the avalanche of new regulations coming down on community banks from Washington is having a negative impact on their lending and consumer choice.
According to the survey:
• 73 percent of community bank respondents said regulatory burdens are preventing them from making more residential mortgage loans;
• Significant percentages of community banks are no longer active in the residential mortgage market, are considering an exit from this line of lending or are exiting the market;
• 78 percent of respondents reported increasing the number of staff members dedicated to lending compliance over the past five years, and;
• 44 percent said they originated fewer first-lien residential mortgage loans in 2014 compared with the year before.
The survey also found that 66 percent of respondents said they do not provide loans that are outside the Consumer Financial Protection Bureau’s Qualified Mortgage definition or would only do so in special cases.
Just 25 percent of community bankers said they are providing loans that do not fit the CFPB’s QM definition, showing that the new restrictions have shrunk the credit box and taken away lender discretion in granting credit.
Meanwhile, half of all rural banks said they do not qualify for the QM rule’s “rural” exception, which demonstrates that exemptions from the standard are too narrow, limiting access to credit for consumers who need it.
ICBA’s newly released Plan for Prosperity for the 114th Congress includes several provisions that would reform how the CFPB’s mortgage rules apply to community banks.
For instance, the Plan for Prosperity would offer relief for loans held in portfolio because community bank lenders have a direct stake in ensuring the performance of these loans through proper underwriting and affordability.
Additionally, the Plan for Prosperity addresses onerous new regulations on escrow, appraisals and mortgage servicing rights with sensible reforms that would preserve important community bank participation in the mortgage lending.
Aligning these new mortgage rules with the community bank incentive structure that promotes sound lending is instrumental in preventing further declines in access to mortgage credit for consumers.