Most of the sweeping changes under Dodd-Frank target big banks: Citigroup, Bank of America, and the like. But there are a slew of new regulations that will affect small businesses as well — an effort that the Consumer Financial Protection is heading up.
Under the CFPB’s new rules, mortgage lenders of all sorts will have to comply with stricter lending standards and make more disclosures to potential customers, with the aim of clamping down on unscrupulous and irresponsible mortgage-lending that caused the 2008 meltdown. The ICBA, however, is concerned that the new regulations will overreach and unfairly punish community banks.
“The ICBA is very concerned that many of the new proposed mortgage rules will actually cause community banks in particular to experience high costs with very little benefit to the customer,” Fine said. “When regulatory agencies act — not just the CFPB — they act with a broad brush ... they are sweeping in the innocent along with the guilty.”
Fine points out that community banks are generally less risky mortgage-lenders than non-banks: They typically “stay very close to the loans” and are inclined to keep mortgages on their own portfolios rather than selling them off and passing off the risk to someone else, as non-bank services frequently did in the lead up to the meltdown. (Others point out that community banks in certain states did make bad decisions in the lead-up to the crisis. Simon Johnson, for example, says that some “thinly capitalized community banks made very bad bets on real estate, often commercial real estate.”)
The CFPB’s new mortgage-lending standards will apply to all mortgage lenders — community banks included. As a result, the ICBA warns that the new mortgage regulations, taken together, will end up increasing the cost of mortgages on the whole, even for buyers with good credit. “It’s going to be harder for the average first-time homebuyer to get a mortgage,” Fine concludes. “That market will be more constricted.”
That said, the ICBA does support some of the new rules that the CFPB is implementing. The consumer bureau, for example, is consolidating mortgage disclosure regulations that are overlapping, conflicting and/or redundant. “We’re all for efficiency and streamlining — that part of their effort is good for all entities that make mortgage loans,” Fine says. More generally, the ICBA also supports Dodd-Frank’s effort to rein in systemically risky banks and mortgage mills and make them more accountable.
What’s more, the ICBA praises the new consumer watchdog for going out of its way to solicit feedback from community banks and other stakeholders in its effort to hammer out the new regulations. “I will give the CFPB credit — they’ve not only reached out to us, but also individual bankers and have contacted other stakeholders within financial services industry. Their outreach is broad and deep,” Fine says, adding that his group has been meeting almost weekly with the CFPB since the bureau opened. Other bankers have praised the CFPB’s outreach efforts as well.
In fact, the CFPB announced today that it’s forming a “Small Business Review Panel” to gather feedback and evaluate the costs and benefits of its new mortgage disclosure requirements — an effort that the ICBA is involved with as well. As part of that effort, the CFPB has also issued a lengthy document outlining the potential costs and benefits to its new regulations, revealing the depth of its concerns about unintended consequences.
“The CFPB is dedicated to issuing thoughtful, research-based rules that take into account not only the benefits to consumers but also how businesses of all sizes will be affected,” CFPB Director Richard Cordray said in a statement. “We take all feedback seriously.”
But while Fine says that he appreciates the outreach, the “jury is still out” on whether CFPB regulators will adjust accordingly, he said.
“At this point, if you can judge by their words, they understand our points. Now we’re waiting to see if they translate that into action.”