Results of the Independent Community Bankers of America's (ICBA) recent ‘Community Bank Qualified Mortgage Survey’ suggest that provisions for balloon-payment mortgage loans and rural community banks in the Consumer Financial Protection Bureau's (CFPB) ability-to-repay and qualified mortgage regulations ‘need to go further to adequately protect’ many community bank customers.
‘Community banks are responsible mortgage lenders that did not participate in the abuses that contributed to the financial crisis,’ says ICBA chairman Bill Loving. ‘Nevertheless, ICBA's survey shows that some Main Street communities could be cut off from a critical source of mortgage credit without adjustments to the CFPB's new mortgage rules.’
Because of the nature of community bank mortgage loans and their vested interest in loan performance, restrictions on community bank balloon loans are unnecessary regulatory burdens, the ICBA contends. Although balloon loans made by small creditors that operate predominantly in rural or underserved areas are deemed to be qualified mortgages under the CFPB mortgage rules, the bureau's definition of rural is too narrow, leaving out too many communities and unnecessarily cutting off access to credit.
Survey findings include the following:
Among the 75% of respondent community banks that currently make balloon-payment mortgage loans, less than half (46%) would qualify for the rule's provision for balloon mortgages.
For respondent community banks that consider themselves to be rural banks, 44% do not qualify as ‘rural’ under the rule's definition.
Among the community banks that do not qualify for the balloon exception, most are disqualified primarily on the basis of the definition of ‘rural’ (43%).
To address concerns with the CFPB's mortgage rules, ICBA is encouraging the bureau to expand the definition of ‘qualified mortgage’ to include additional loans held in portfolio by small creditors, including balloon-payment mortgages originated by small creditors in non-rural markets.
The group is also pushing the CFPB to increase the limit for the number of mortgage loans originated and retained in portfolio to qualify as a community bank lender to 1,000 per year, and to expand the definition of ‘rural’ for balloon mortgage loans and escrow requirements to include all counties outside metropolitan statistical areas and all towns with fewer than 50,000 residents, among other measures.