Monday, January 14, 2013

Rural banks could gain advantage from federal mortgage rule exemption

New federal mortgage rules include a key standard: Consumers can't get a qualified mortgage if they have debts exceeding 43 percent of their income. But the Consumer Financial Protection Bureau pushed for, and got, an exemption for small banks with less than $2 billion in assets, giving them more freedom to lend in their communities to low- and middle-income people, who make up large portions of their clientele, Danielle Douglas of The Washington Post reports.

"Consumer advocates say the new standards could shut out first-time home buyers or others with low income," but the exemption for small banks "could provide a pathway for these types of borrowers and offer credit unions and other small lenders a bigger slice of the mortgage market, currently dominated by a few big banks," Douglas writes. Consumer Bureau director Richard Cordray told her that community banks and credit unions didn't cause the recent financial crisis and shouldn't be punished for it: "Their traditional model of relationship lending has been beneficial for many people in rural areas and small towns across the country."

There's a catch: To get the exemption, small banks would have to keep loans on their own books, rather than sell them to investors, Douglas reports. But the majority of community banks already do that. Independent Community Bankers of America president Camden Fine said he was pleased so many of his members got exemptions. The rule "could shift at least a certain class of borrowers toward community banks and away from the big national players because community banks will have more flexibility," he told Douglas. (Read more)

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