SUNDAY, DECEMBER 24, 2017 State bankers favor tweaks to regulations

Measure would offer relief for small lenders, they say

The U.S. Senate Banking Committee is taking up the first meaningful bipartisan regulatory relief bill since the Dodd-Frank Act was enacted in 2010.

The Economic Growth, Regulatory Relief and Consumer Protection Act was introduced by Mike Crapo, chairman of the Senate Banking Committee, with 19 bipartisan cosponsors.

The bill likely has the support of most Arkansas bankers, said Susannah Marshall, a deputy bank commissioner with the state Bank Department. It also seems to provide some relief from the qualified mortgage requirements under the Dodd-Frank Act, Marshall said.

A qualified mortgage is a category of loans that have certain, more stable features that help make it more likely that the borrower will be able to afford the loan’s terms. Lenders of qualified loans must make a good-faith effort to determine that applicants can afford the loan.

Dodd-Frank was passed in an effort to prevent future financial crises that caused the economic downturn of 20072009.

But it went too far, said Jason Tennant, president of Cornerstone Bank in Eureka Springs. It lumped the country’s largest banks with smaller community banks “that didn’t cause the mortgage crisis to start with.”

Dodd-Frank has a checklist of 113 items that banks have to follow to be sure each mortgage loan is qualified, Tennant said.

Some of that will be relieved if the current Senate bill passes, Tennant said.

“We’re still going to track [most of the checklist],” Tennant said.

The requirements to determine qualified mortgages have been challenging for banks in Arkansas, Marshall said.

Other changes proposed by the bill include:

Relieving all mortgages under $400,000 from requirements to have an appraisal.

Making it easier to open new accounts online and engage in transactions online.

Raising the requirement for regulatory examinations for banks with $1 billion to $3 billion in assets to every 18 months instead of every 12 months.

Ending the requirement for company-run stress tests for banks with less than $250 billion in assets.

One of the biggest problem for banks under Dodd-Frank is keeping up with regulatory burdens, Tennant said.

“For community banks in Arkansas, [the bill, if passed] will ease up some of the regulatory requirements, like we have to do on mortgage loans,” said Tennant, whose bank is locally owned and has about

$250 million in assets.

Cornerstone Bank, like other relatively small banks, was overloaded with the documentation required under Dodd-Frank, Tennant said.

The documentation is expensive for Cornerstone — and eventually, for the consumer — and doesn’t benefit the consumer, Tennant said.

“I don’t think it’s fair to say that we made fewer [mortgage] loans under DoddFrank, but what it did do was require more documentation and took more time,” Tennant said.

Even though it already had a full-time compliance officer, Cornerstone had to spend money to outsource some of its compliance work to other companies, Tennant said. The Dodd-Frank Act has hampered growth in rural markets in Arkansas and other parts of the country, said Sean Williams, chief executive officer at First National Bank of Wynne, which has about $350 million in assets.

“I think [the Senate banking bill] is really a step in the right direction,” Williams said.

One change the Senate bill proposes is for banks that originate fewer than 500 mortgages in each of the two preceding years to be exempt from some regulatory reporting requirements. First National Bank of Wynne fits that description, Williams said.

“Those reporting requirements are very time-consuming,” Williams said. “It really puts a hurt on banks our size, not only because it takes time but because banks our size have had to hire additional people to keep up with that stuff.”

The Dodd-Frank Act took away some banks’ ability to differentiate among their customers, said Phil Baldwin, chief executive officer at Citizens Bank in Batesville, which has about $760 million in assets.

“Everybody has different needs,” Baldwin said. “[This bill] puts it back the way it was for banks with less than $10 billion.”

Dodd-Frank also required appraisals on mortgage loans.

“There aren’t that many people who do appraisals anymore,” Baldwin said. “If you live in a rural area, there aren’t a lot of comparables. So your house can be almost unsaleable.”

The Senate bill does away with the requirement for an appraisal for houses valued below $400,000. The bill would make it easier for customers to open accounts online and bank online, Baldwin said.

“Right now, it’s hard to open an account online or make a loan online,” Baldwin said. “Yet you have all these other banks doing it right and left, like Quicken Loans with Rocket Mortgage. And a retail example is Amazon.”

The bankers interviewed are confident that the bill will pass, particularly because it has gotten bipartisan support.

But Bill Holmes, president of the Arkansas Bankers Association, noted that the banking bill got pushed behind the recent tax overhaul and a budget bill to keep the government funded.

“And then you know they are gone for the rest of the year,” Holmes said. “The last word we had was there [was good support] for it.”