The Oklahoma Bankers Association has raised concerns about what new federal mortgage regulations proposed by the U.S. Consumer Financial Protection Bureau will mean for smaller community banks in the state.
In a letter to the bureau released Tuesday, the association said proposed rules that would exempt smaller banks from lending regulations surrounding loans with balloon payments would still be too stringent for many smaller institutions.
Under the proposed “ability to repay” rule, lenders would have to determine a borrower's ability to repay a loan using a detailed list of requirements for creditworthiness.
The new lending regulations are part of mortgage reforms in the Dodd-Frank Act that were enacted in the wake of the 2008 financial crisis and are meant to curb some predatory lending practices.
Community banks would be exempt from some restrictions on making loans with balloon payments under the proposed Consumer Financial Protection Bureau rules, but the regulations don't go far enough to ensure that smaller lending institutions in Oklahoma would be able to continue to make such loans, the association said in its letter.
Community banks in Oklahoma simply do not have the staffing available to monitor and comply with all of the new lending requirements, the bankers association said.
“For some reason, many in Washington seem to believe that ‘balloon' notes are inherently bad. They're not,” the letter said. “Most community banks have made loans with a balloon feature for decades, and have done so without incident. They have made these loans, as opposed to making an ‘adjustable rate mortgage loan,' because they are less costly and much simpler for the customer to understand and service. They are also much easier, generally less risky and much quicker for the bank to make.”
Tightening regulations on how such loans can be made could have a crippling effect on the ability for consumers to gain access to credit, said Roger Beverage, bankers association president and CEO.
“Community banks in the state are being unduly punished by a one-size-fits all mentality for regulations in Washington, D.C.,” he said Tuesday.