The Community Mortgage Lenders Association is urging legislators to pass a bill that would exempt small lenders from the Basel III capital rules, Consumer Financial Protection Bureau servicing rules and other provisions of the Dodd-Frank Act.
The purpose of this legislation is to allow trouble-free, compliant and responsible community lenders to remain competitive in the marketplace and to prevent the consolidation of mortgage lending into the large institutions, according to the CMLA.
To qualify for this regulatory relief, they must be good lenders with no adverse regulatory action within the past two years. Almost all of their originations (95%) must be qualified mortgages that meet the CFPB ability to repay standards.
In return, they would be exempt from CFPB examinations unless a state or other federal regulator makes a referral to the CFPB.
Small community bankers and lenders were not responsible for the mortgage crisis, and should not face excessive regulatory oversight and additional cost burdens, said CMLA chairman Mark McDougal, who is also the chief executive of FirstTrust Mortgage in Overland Park, Kan.
The DFA takes a one-size fits all approach to regulation and it is really designed for big lenders and servicers, according to Jeffrey Kibbey, general counsel for Century Lending Co. in Louisville, Ky.
By proposing this legislation, we are attempting to help the Dodd-Frank Act recognize the unique role that community lenders play in the overall marketplace, Kibbey said.
The CMLA bill provides regulatory relief for small banks with less than $2 billion in assets that originate no more than 5,000 loans annually and nonbank lenders with a net worth of less than $25 million that make fewer than 5,000 loans a year.
The Community Mortgage Lenders Act also calls for a partial exemption from HUDs disparate impact rule. Kibbey noted that the QM rule forces lenders into a tight credit box. If 95% of our book is QM loans, then the other 5% would be deemed to have QM status, the CLO general counsel said. This 5% exception would allow the community lenders to meet their fair lending obligation.