A recent survey by the Independent Community Bankers of America (ICBA) discovered that 73 percent of community banks surveyed feel that new mortgage regulations are holding them back from making more mortgages. The ICBA used the results as a push for its “Plan for Prosperity,” which details how Congress may reform the CFPB’s mortgage rules to better suit community banks.
“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 stated when the survey results came out. “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 survey further found that a significant number of community banks no longer were active in the mortgage market, may leave the market or are in the process of leaving the market. Sixty six percent of those surveyed also stated that they did not provide non-“Qualified Mortgage” loans, as defined by the Consumer Financial Protection Bureau (CFPB), except in special cases. Approximately half of all rural banks surveyed said that they do not qualify for the QM rule’s “rural” exception.
To respond to community banks’ apparent struggles under the new regulations, the ICBA put forth several recommendations to ease the burden. Amongst them: Providing safe harbors for the “qualified mortgage” status for loans originated and held in portfolio by banks with less than $10 billion in assets; exempting such banks from escrow requirements for loans held in portfolio, exempting community banks from higher risk mortgage appraisal requirements for loans of $250,000 or less, as long as they are held in portfolio for at least three years; and exempting community banks from new information reporting requirements under the Home Mortgage Disclosure Act.
The ICBA survey results are at odds with how big banks are handling the emerging mortgage market. Fannie Mae did a similar survey at the end of 2014 which revealed that 88 percent of lenders surveyed state that they are looking to grow their mortgage origination business, 52 percent plan to increase their marketing to first-time buyers, and 70 percent reported that they would like to grow their mortgage servicing business.
“People have started to focus on how to grow their business. We expect this year to be our best year in terms of overall business and are really bullish on the market this year,” United Mortgage Wholesale President and CEO Mat Ishbia said in an interview.
None of the lenders surveyed by Fannie had plans to downsize or exit the origination business, but 4 percent stated that they planned to downsize their servicing business, said Li-Ning Haung, senior manager of economic and strategic research with Fannie.
“Survey results show that, despite lenders’ concerns about compliance and weak consumer demand,1 the vast majority of lenders have a positive outlook,” Haung said.
Both surveys agreed on one aspect of the market, however: Lower debt-to-income and stricter regulations were cited as the most common reasons for credit-tightening practices as of late, although larger lenders were more likely to report credit easing rather than tightening. Still, 44 percent of lenders reported tightening their standards.