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Smaller financial institutions should lend outside of a new ultra-safe class of mortgages created by the Consumer Financial Protection Bureau, according to Richard Cordray, the agency's director.
February 27 -
Radio silence from the CFPB on how it views the enforcement of fair lending laws is making community bankers nervous.
February 25 -
The CFPB released its long-awaited final rule laying out how lenders must ensure borrowers have the ability to repay a loan, including creating a carve-out for qualified mortgages.
January 10
LAS VEGAS — Consumer Financial Protection Bureau Director Richard Cordray told community bankers on Wednesday that they should not be concerned about sweeping new mortgage rules issued by the agency.
"I know that complying with our new regulations is a worry for many of you," said Cordray, at the Independent Community Bankers of America conference in Las Vegas. "For the many community banks out there that uphold strong underwriting standards, we encourage you to continue to offer mortgages to those borrowers you can evaluate as posing reasonable credit risk."
In an address similar to one he gave to credit unions last month, Cordray told bankers "you should not be holding back."
He also reiterated that lenders
"Over time, as more private capital returns to the mortgage market, we do not want to prevent you from extending credit responsibly based on vague concerns about whether the regulators will support responsible lending," he said. "Community banks that lend responsibly have no reason to fear the Ability-to-Repay rule."
The mortgage rules, to take effect next year, will require lenders to prove the borrower has an ability to repay. Qualified mortgages must, among other requirements, ensure a payment does not exceed 43% of a borrower's monthly gross income.
Cordray said the CFPB intentionally put "bright lines" in their qualified mortgage rules so most prime loans will qualify and many smaller lenders would be exempt.
Corday noted that the rule includes several exceptions for smaller lenders, including an exemption for smaller banks with less than $2 billion of assets as long as they consider debt-to-income ratios when making a loan. Those banks must also make less than 500 first-lien mortgages through affiliates in order to qualify.
How those proposals will affect thousands of community banks across the country remains to be seen. But Cordray believes the exemptions, along with the existing tight lending market, will prompt business for small bankers.
"Indeed, as you know, the current mortgage market is so tight that lenders are leaving good money on the table by not lending to low-risk applicants seeking to take advantage of the current favorable interest rate climate," he said. "This actually creates a window of opportunity for community banks that helped 'write the book,' so to speak, on what it means to underwrite responsibly."
Cordray received a frostier welcome compared to Martin Gruenberg, the chairman of the Federal Deposit Insurance Corp., who spoke first. Cordray could not evoke applause from attendees, even when he made comments that should have appealed to bankers.
The chill wasn't personal, said Steven Pung, president of the $1.4 billion-asset Isabella Bank in Mount Pleasant, Mich. The CFPB is "more concerning to community banks" than the FDIC, Pung said in an interview after the speeches. "There is more apprehension as the rules unfold."
