New rules coming out of Washington, D.C., will impact the mortgage market and banks big and small. Among them, the Consumer Financial Protection Bureau (CFPB) has proposed rules regarding mortgage disclosures. The agency says it is attempting to simplify and write plain English disclosures for consumers. Comments on the proposals are due Nov 6. In addition, the CFPB will require lenders to make sure a mortgage holder qualifies for a mortgage, or has the ability to repay the loan, creating what’s essentially a series of check boxes for lending departments, as well as restrictions on loan terms.
Because banks both large and small will be required to comply, Bank Director asked attorneys to weigh in on the CFPB’s proposed mortgage regulations.
Should community banks be exempted from the Consumer Financial Protection Bureau’s proposed rules on mortgage disclosure and qualifying mortgages?
Yes. Community banks need to be exempted from the Consumer Financial Protection Bureau’s proposed rules on mortgage disclosure and qualifying mortgages, as community banks have been and are subject to regulatory oversight on mortgage disclosures rules. There is no need for the CFPB to be involved in the supervision of community banks. Why do we need two regulators to oversee this issue and many other banking issues when federal bank regulators were adequately doing their jobs? One major problem that lead to the current crisis revolved around unregulated mortgage originators, not disclosure rules. Let bankers and their prudential regulators continue with regulatory oversight of mortgage disclosure rules and keep the CFPB out of community banks.
—Bob Monroe, Stinson Morrison Hecker
First, the current proposed definitions of qualified mortgages and qualified residential mortgages will continue the current inequity in the mortgage market. Essentially, people like me can refinance their mortgage to 3 percent with zero closing costs, while other people who desperately need to refinance cannot qualify. Thus, there needs to be some overall sanity brought to mortgage regulation. Beyond that, mortgage regulation needs to cover the entire food chain. The CFPB can reduce the burden on smaller financial institutions regarding such matters as assessing a customer’s ability to repay a loan. If the system of regulation mandates a cost structure that only large financial institutions can absorb, then the result will be the unintended (and the CFPB says undesirable) consequence of a market in which only the multi-trillion dollar institutions can participate.
—Peter Weinstock, Hunton & Williams
Small banks are struggling to keep up with the new rules, and already, we've seen some small institutions enter into what amounts to mortgage referral relationships with bigger banks that have enough horsepower in their compliance departments to keep up with all of the new rules. The CFPB needs to implement reasonable accommodations for these smaller institutions. Otherwise, they may very well regulate these banks out of a fundamental piece of their business.
—Jonathan Wegner, Baird Holm
Regulatory compliance costs have always fallen more heavily on community banks than on large banking companies because of the smaller volume of transaction over which community banks must distribute compliance costs. These costs make it more difficult for community banks to compete with larger banks on the basis of price. These considerations argue in favor of exempting community banks from proposed rules on mortgage disclosure and qualifying mortgages. On the other hand, when dealing with consumer protection issues, consumer advocates may argue that it is unfair and confusing to consumers to exempt anyone from consumer protection requirements. Despite these arguments, the presence of unregulated providers in a market provides a point of reference and a practical check on the potential for regulatory requirements to lead to a diminution in, or even unavailability, of key services and should ultimately benefit consumers.
—Oliver Ireland, Morrison Foerster