Pub. 8 2017 Issue 1

www.wvbankers.org 6 West Virginia Banker D irector Richard Cordray and senior staff of the Consumer Financial Protection Bureau hosted a community bank roundtable in West Virginia at the University of Charleston on February 15, 2017. The meeting was well attended by ten of our member banks and fifteen bankers. The meeting was requested by the Bureau to hear comments and concerns from the community banking industry in order to gain perspective and respond appropriately. The Director stated during his remarks that he knows that community banks were not a culprit in the recent financial crisis. Community banks did not underwrite the bad loans that sank the housing market. On the contrary, he said that community banks upheld sound underwriting standards even at the cost of losing customers and market share to unfair competition in the marketplace. The mere mention of the Bureau to most bankers elicits a look of dismay and distaste. While the Bureau’s rule- making and enforcement activity has caused much consternation within the industry, data suggests that lending activity is on the rise and bad actors have been forced to play by the rules or get out of the market. Director Cordray stated that while he’d like to do more to help community banks, he is being somewhat deliberate in his approach that proposed reforms not remove some of the competitive advantages that the current law’s tailored exemptions give smaller banks. To completely roll back financial reforms and consumer protections in the name of helping small banks is likely to create an environment in which there is a resurgence of the risky lending practices that led to the crises in the first place. Accordingly, the Bureau built out a vigorous supervision program over non-bank mortgage lenders and mortgage servicers leveling the playing field for community banks. Director Cordray was quick to point out that community banks already enjoy preferential treatment in the following areas: 1 No depository institutions under $10 billion are subject to supervision by the Bureau. 2 Small banks have greater underwriting flexibility when making qualified mortgages, because if small banks hold the loans in portfolio they are not bound to the fixed debt-to-income ratio limit that applies to larger lenders. Director Cordray indicated his support of Congressional action to provide additional regulatory relief for qualified mortgages. 3 The Bureau expanded the definition of “small creditor” so that more banks would qualify for a variety of mortgage rule exemptions by raising the loan origination limit for small-creditor status for first-lien mortgage loans fourfold, from 500 to 2,000 per year, for institutions under $2 billion and maintaining that loans held in portfolio do not count towards the limit. 4 The Bureau expanded the definition of “rural” areas to include census blocks that are not in an urban area as defined by the Census Bureau. Furthermore, a process has been established to allow parties to petition the Bureau for the “rural” or “underserved” designation in certain areas for the purposes of the Bureau’s ability- to-repay rule. So far, no petitions have been denied. The Bureau can also exempt creditors serving rural or underserved areas from requirements that they maintain escrow accounts for higher-cost loans. 5 Small creditors, those that service 5,000 or fewer mortgage loans, are exempt from most mortgage- servicing rules, including the periodic statement requirement, the general servicing policies and procedures, and most of the loss mitigation provisions. Director Cordray stated tiered rules are appropriate in this market and that there may be more opportunities to make further amendments based upon current market conditions. As highlighted above, the Bureau has the ability to grant exemptions on a rule-by-rule basis as authorized under Section 1022 of the Dodd-Frank Act. Members of Congress and other interested parties are requesting that the Bureau go further by exempting classes of entities from its regulatory requirements as explicitly granted under the Dodd-Frank Act. Director Cordray has previously stated that he does not have legal authority to grant small institutions a broad carve-out nor can he distinguish between depository institutions and non-depository institutions. But in meeting with the Director and his staff, it became evident to me that they understand that overly-burdensome rules and mandates have been misplaced and often hurt the very consumers and small businesses that community banks serve, and the Bureau is making adjustments where it can. Importantly, this is why meetings such as the one held recently are so crucial, and I’d like to thank the members that were in attendance. Banker advocacy plays an important role in the Bureau’s regulatory outlook. Community banks must identify potential areas for regulatory simplification and engage, providing a means to good public policy.  A MESSAGE FROM THE PRESIDENT & CEO By Sally Cline