The Independent Community Bankers of America (ICBA) and a 45-member coalition of state and regional banking associations submitted a letter to the Consumer Financial Protection Bureau (CFPB) on July 15th urging the agency to review and revise the current ability-to-repay/qualified mortgage (QM) rules and escrow requirements for higher-priced mortgage loans to allow community bank loans held in portfolio for the life of the loan to receive automatic QM safe harbor status and an exemption from the escrow requirements if the loans are higher priced.
Based on the rules’ current requirements, there are community banks that would be considered small financial institutions due to their asset size but that still do not qualify for the small creditor exemption because they exceed the loan volume threshold. A threshold of 500 total first lien originations per year is only 41 first lien mortgages per month, or nine per week, an amount that easily can be exceeded by a smaller creditor. For community banks that wish to grow their mortgage business, this low number is restrictive since some banks will not provide loans that do not have QM safe harbor status, so they stop providing mortgage loans all together after they reach this low threshold.
Also, they believe community bank loans held in portfolio should be exempt from new escrow requirements for higher-priced mortgage loans because portfolio lenders have every incentive to protect their collateral by ensuring the borrower can make tax and insurance payments. For many community banks, establishing and maintaining escrow accounts is expensive and impracticable and, again, will only deter lending to consumers who have no other options.
Lastly, the current exceptions for community banks in the escrow and QM requirements to be pedantic and cumbersome, because community banks must constantly consider their current loan volume and where and to whom they are lending to in order not to lose exemption status, if indeed they qualified for it to begin with.
The coalition asks CFPB to expand small creditor exemptions so they can continue to serve the consumers in their communities by underwriting based on firsthand knowledge of their customers, which is a contrast to how larger financial institutions operate.