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Community banks seek exemptions from CFPB’s underwriting, mortgage disclosure rules

Richard Cordray

Community banks across the United States are seeking exemptions from the Consumer Financial Protection Bureau’s new rules on mortgage disclosures and underwriting standards amid concerns regarding the agency’s commitment to minimizing the regulatory burden.

“The concepts have to be reduced to actual rules with details, and the details are getting in the way of the concepts,” Camden Fine, the president of the Independent Community Bankers of America, said, according to Bloomberg.

When President Obama installed Richard Cordray to the position of CFPB director, Cordray vowed to consider exemptions to some rules in order to reduce the costs associated with increased regulatory compliance. Big banks balked at the proposal and consumer watchdog groups voiced concern that such a policy would contribute to another financial crisis.

Banks that do few mortgages are pushing the CFPB to lend exemptions to new mortgage disclosures, which are mandated by federal law and given to consumers when they are considering a mortgage. Fine said that the ICBA has also mentioned to Cordray the possibility of limiting the agency’s “qualified mortgage” or “QM” rule, which ensures certain legal protections for banks that follow underwriting rules in the event that a loan goes bad.

“A lot of time and money gets spent just trying to figure out what the rules mean and how to comply,” David Silberman, associate director of research, markets and regulations at the CFPB, said, Bloomberg reports.

Many industry participants and congressional Republicans have criticized the recent proposal. The House Small Business Committee said during an Aug. 1 hearing that the proposal is “as long as War and Peace but it is probably not as interesting to read, and it is about as indecipherable as if you were an English speaker trying to read the novel in Russian,” according to Bloomberg.

Cordray defend the proposal, saying that only a “small portion” of the 1,099 page proposal is the actual rule. Two hundred nine pages are actual regulations that lenders will be required to follow, while another 205 pages lay out guidance for companies and 684 pages provide a cost-benefit analysis.

Fine, as well as other community bank representatives, maintain that only tiered regulatory compliance will prevent excessive compliance costs.

“I still think their intentions are legitimate in trying to go easy on community banks,” Larry Winum, the president of Iowa-based Glenwood State Bank, said, Bloomberg reports. “But, I don’t think we’ve gotten close to that yet.”

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