WASHINGTON — The clock is ticking to amend Dodd-Frank Act regulations before consumers in rural communities run out of borrowing options, community bankers from Kansas and Oklahoma told a House panel on Thursday.
"Many banks in rural Kansas have moved out of the mortgage lending business," Shan Hanes, president and chief executive of the $73-million asset First National Bank of Elkhart in Kansas, said in written testimony to a House Small Business subcommittee. "Not because the loans are not safe and profitable, but due to compliance."
Hanes said that the largest secondary mortgage provider in his market no longer purchases real estate loans smaller than $50,000, yet the average residential loan in his portfolio is $33,000. First National Bank of Elkhart holds its loans in portfolio, but Hanes said the change is one of the reasons why institutions similar to his have left the market.
"There won't be anybody in our portfolio that would be able to apply for a loan" if his bank went away, Hanes said in response to a question by a lawmaker. "We have to continue to be able to make that loan."
Rep. Tim Huelskamp, R-Kan., said that while Dodd-Frank was meant to protect consumers from predatory lending, it has ended up hurting community bankers who didn't cause the crisis.
"I am not so worried about consumer protection," Huelskamp said. "I am worried about if they will not have any more choices. … We are probably going to be sitting here in three or four years saying, 'Gosh darn it, what are we going to do to make sure they can get a loan in Elkhart, Kansas, because we are about at the end of our stick.' "
Marcus Stanley, policy director at the consumer advocacy group Americans for Financial Reform, acknowledged that parts of Dodd-Frank could be changed to better fit community banks, but he said recently proposed legislation would benefit bigger banks.
"I think there really is space with regulators and even possibly with Congress on a bipartisan basis for legislation that is truly targeted at the kind of small rural banks that we are talking about today," Stanley said.
But he added that "when you actually look at legislation that would roll back parts of Dodd-Frank and would do things like exempt loans held on portfolio, you see it wouldn't just apply to small rural banks, it doesn't just apply to community banks, it applies across the board to large regional banks."
Stanley said the Consumer Financial Protection Bureau, which established the "qualified mortgage" rule that has vexed many smaller institutions, has made "lots of efforts" to tailor the regulation, including granting some leeway for banks that hold loans in portfolio.
"The desire to exempt on-portfolio loans… that can make sense for a bank that truly has a relationship model and the CFPB has, in fact, exempted loans held in portfolio from many of the requirements under the new mortgage rule," Stanley said.
Roger Beverage, president and CEO of the Oklahoma Bankers Association, said the CFPB "is getting better" at tailoring rules, but added that "it has taken a while to get there" and that there is still more to do.
"The banking agencies should move towards customized examinations that consider the nature of a bank's business model, charter type and perhaps most important, bank management's success at managing credits, including a borrower's character, prior repayment history and strength of personal guarantees," he said.
Beverage said he supports legislation sponsored by Rep. Scott Tipton, R-Colo., that would do just that.
But Stanley worries that regulatory relief bills could become avenues to help larger institutions.
"What we are very focused on and concerned about … [is] that changes to tailor these rules don't become loopholes that can then be used by larger banks or can be used in sort of rent-a-charter situations where somebody gets a bank charter and then sells stuff out into the secondary market that doesn't meet certain kinds of standards," he said.