Commercial banks play a major role in offering customized mortgages and consumer loans tailored to fit the unique characteristic of borrowers within their communities. Banks also are oftentimes the sole financial service provider in many of our nation’s smallest rural small towns. However, the compliance burdens and risks imposed by several requirements of the Dodd-Frank Act (DFA) and implementing regulations, particularly in the area of mortgage credit, have had negative impacts on banks, their customers and the housing market. In fact, the recent Fannie Mae June 2014 Quarterly Mortgage Lender Sentiment Survey finds 80 percent of lenders plan to make only qualified mortgage (QM) loans and 85 percent said their costs for quality control-related activities for mortgage lending had increased during the past 12 months.

Two of the most problematic aspects of the regulations adopted to date to implement the DFA are (1) the application of the QM requirements and the ability-to-repay rule applicable to mortgages that do not meet with QM requirements on loans held in portfolio by the lender and (2) the limited scope of the small servicer exemption from the recently-adopted escrow and appraisal rules.

For more information on this issue, please see our Federal Issue Brief: Community Bank Regulatory Relief.