“Mortgage lending for community banks has historically been our bread and butter,” Buford said.
“A lot of these loans are not going to qualify for the Fannie Mae market — they're not cookie-cutter loans. Community banks have historically done a great service by taking these loans and keeping them in-house.”
The new mortgage lending regulations also include an expansion of the Homeownership and Equity Protection Act of 1994. The law requires greater disclosures to borrowers for higher-interest loans and gives homeowners greater legal remedies to get out of their mortgage if the lender doesn't follow the proper procedures.
“I think a lot of the banks will just decide not to do these loans altogether because the risk is too great — it's not a cost-effective way to make money,” King said.
“When I make a loan to someone, I want to make a loan that they can repay.”
Like many community banks, Citizens Bank of Edmond services all of its mortgages in-house instead of selling them on the secondary market.
New regulations will mean more paperwork and additional steps that Citizens Bank must take before it lends money.
More importantly, the new regulations may limit the type and amount of credit the bank is able to give borrowers, said Jill Castilla, executive vice president for Citizens Bank.
“It's important that banks be regulated and consumers should be protected, but sometimes that protection can result in limitations on what the banks can offer to customers,” Castilla said.
More mergers ahead?
Beverage is concerned that more banks in the state will merge in the coming years to gain the benefit of economies of scale in the face of more federal regulations.
“I anticipate seeing a lot more consolidation over the next three to five years — but I hope that more bankers are going to continue to reach the conclusion that it is in their best interests to keep fighting in this war,” he said.
In the past 12 months, the Oklahoma State Banking Board has approved the mergers or acquisition of three state-chartered banks in Oklahoma, all small community banks in rural parts of the state.
“Some of what we have seen are some of the smaller community banks that seem to be getting out of the business because it's just the regulatory climate that makes it that much more difficult to operate,” Gilbert said.
In the most recent deal, the Banking Board on Wednesday approved Wewoka-based Security State Bank's acquisition of First State Bank in Fairfax. The family-owned bank is the only locally held bank in Fairfax in Osage County, said Marty Hanson, president and CEO of First State Bank in Fairfax.
Additional regulations were one of the family's primary reasons for selling the bank, Hanson said.
“From our perspective, it's become increasing difficult for small rural banks to be competitive and the big driver of that is a lot of the new regulations,” Hanson said.
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At a glance
New rules for lending affect banks
The Consumer Financial Protection Bureau has developed new rules that will affect mortgage lending for small banks in the state.
Most of the new rules will go into effect in January 2014.
The Ability-to-Repay rule will require mortgage lenders to go to greater lengths to document and verify a borrower's ability to repay a loan.
Balloon payments will prohibited, with some exceptions.
Coverage of the Homeownership and Equity Protection Act of 1994 will be expanded. The law requires greater disclosures to borrowers for high-interest loans.
When people think of a banker, they think of somebody who is ultrarich — that these are the people who should take on all of the new regulations, but that's not always how it is.”
Chairman and CEO, First State Bank in Noble