CFPB rules would drive community banks out of mortgage lending, group warns

By Ben Goad - 02/27/13 02:16 PM ET

The Independent Community Bankers of America (ICBA) is seeking changes to a slate of major new mortgage lending rules, arguing the regulations would hurt institutions that played no role in the housing meltdown that spawned them.

The regulations were unveiled last month by the Consumer Financial Protection Bureau (CFPB) in response to the national foreclosure crisis, which helped push the country into the Great Recession of the late 2000s.

Among hundreds of rules required by the Dodd-Frank Wall Street reform law, the so-called "Ability-to-Repay" regulations are meant to ensure lenders verify the finances of would-be homeowners and that borrowers have enough income and assets to repay their loan. They also bar lenders from using teaser rates to qualify borrowers that otherwise would not be eligible.

The CFPB laid out guidelines for “qualified mortgages,” criteria aimed at preventing bad lending practices. Banks that adhere to the criteria would enjoy “safe harbor” protection from lawsuits.

The ICBA is calling upon the consumer agency to expand the definition of qualified mortgages, which, as written, would close the door on some community bank practices.

“In a quest to prevent the events of the past from happening again, these laws and regulations developed to address the abuses of the past will force some community banks out of the mortgage lending business and reduce access to credit for their customers,” the group argues in comments filed this week with the CFPB.

The group is asking the CFPB to include additional loans – including balloon payment mortgages held by certain small creditors – under the qualified umbrella. The ICBA also wants expanded safe harbor protections and a series of other adjustments that would help community banks operate under the new rules.

“Community banks have always been responsible home mortgage lenders and did not participate in lending abuses that drove the financial crisis,” ICBA President and CEO Camden R. Fine argued.