Pub. 4 2014-2015 Issue 1

6 O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S A Word From CBA... HR 2673 Can Help with Mortgage Lending Rules Due to 6,000 pages of new mortgage lending rules put in place in January 2014, various hard working citizens now are having greater difficulty getting credit. The new government requirements preclude certain loans – even when banks are willing to make the loans. Groups most often hurt by these rules are low income, small business, rural residents, retir- ees and newly employed individuals: generally those who need credit most. Often the bank says “yes” based on the customer’s creditworthiness, but government restrictions say “no.” There’s a solution – that enhances and restoresmortgage availability for these consumers. Banks operate in an environment where overly restric- tive rules are enforced through a policy of “zero tolerance” by federal bank regulators, resulting in extreme compliance caution which hurts lending where loan status is uncertain. While thousands of pages of bank regulations existed prior to the 2008 recession, the 2,319-page Dodd/Frank Act has produced around 14,000 new pages of regulations per the DavisPolk law firm (including January’s 6,000 pages of new mortgage regulations) with only 224 of the 398 DFA rules finalized (about 55%). To quantify that, the U.S. House Finan - cial Services Committee states businesses will have to spend more than 24 million hours each year to comply with the red tape from the first 224 rules. In comparison it took less time – 20 million hours – for workers to build the Panama Canal. The “Portfolio Lending and Mortgage Access Act” (H.R. 2673 by Rep. Andy Barr (R-KY)) will restore credit availability to Americans harmed by these new, overly restrictive rules by restoring flexibility to lenders to continuemaking these loans. It passed out of the U.S. House of Representatives Financial Services Committee in late May, where Rep. Ed Perlmutter (D-CO, the only Colorado Member of Congress on the Com- mittee) voted for it. It is expected to be considered by the full U.S. House of Representatives in July. This portfolio exemption (H.R. 2673) provides lenders flexibility allowing prudent loans to more consumers who qualify for mortgage credit than is possible now under the January rules. The bill would do one simple thing: exempt loans the lender keeps on its books from the rigid requirements. The logic is that since the bank keeps 100% of the risk, it should not be stopped from making a rational and prudent decision – believing in and helping its customers. In short, under the new rules now in force, lenders must see verified proof from the customer’s past earnings that in - come will be adequate tomake future loan payments. Groups typically denied access to mortgage credit due to the new mortgage rules include: • Low income individuals who have good credit and to whom banks are willing to lend now often exceed the government’s arbitrary limit on debt-to-income (DTI) to be eligible for “qualified” home mortgages. The 43% DTI limit means low income struggling families often are denied credit for a home, confining them to rental housing and denying them today’s low rates and the home of their choice that has the neighborhood, schools, other factors important to the family. • Small business owners and professionals who use equity in their home to finance their businesses, and have good credit and enjoy banks’ confidence, often have income that fluctuates over time. So they either they don’t meet government standards for the required third party income verification or they experience delay, hassle and expense to hire an accountant to determine their verifiable income available for debt repayment. • Rural residents who have good creditworthiness may not have alternative lenders if a local community bank ceases mortgage lending due to the heavy burden of complying with 6,000 pages of new mortgage rules. For example, in Oklahoma, 24% of banks no longer are offering mortgage loans of any kind due to the new mortgage rules. Urban areas have alternative lenders, but many rural ones do not. • Retired individuals and newly employed people may have inadequate annual qualified income needed to meet government standards, or they are too recently hired (recent graduates, returning military, etc.) to have an adequate income history. Even when the bank is willing to lend, the government restrictions and required documentation often prevent the loan. These groups need relief from the consequences of these rules. Passage of this narrow exception makes sense for everyone and will restore the lender’s ability to believe in customers. Various organizations representing groups hurt by the new mortgage rules are coming together and urging Members of Congress to support H.R. 2673. n Don Childears, President/CEO Colorado Bankers Association