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Advances to Provide Qualified Mortgage Loan Relief for Community Banks

Author: Barry D. Johnson

Several weeks ago, I wrote of HB 2226 which amends the federal Truth in Lending Act to create a new form of Qualified Mortgage Loan that is deemed to meet Ability to Repay standards. 

The concepts included in HB 2226 are now included in SB 2155 which appears headed toward passage in the Senate with the support of both parties.  This bill has received much press because it addresses the “too big to fail” (TBTF) threshold, substantially increases the asset size of lenders subject to the TBTF regulations (regarding banking “living wills” and periodic “stress tests”.)

But the bill does much more than that.  Title I of the bill provides substantial regulatory relief for community banks and lenders.  Specifically, the bill adopts much of the language from HB 2226 and creates a special class of Qualified Mortgage Loan that is deemed to meet the ability to repay standards of the Truth in Lending Act.  A Qualified Mortgage will now be just about any consumer loan a depository institution makes which is held in portfolio by the lending institution provided the loan does not have certain features.  As I discussed in my prior blog post, this new Qualified Mortgage definition is of substantial aid to community lenders who presently find full QM underwriting to be too restrictive.  Unlike HB 2226 this new QM would be limited to institutions with less than $10 billion in total assets, though that threshold is sufficiently high to allow most community lenders freely originate these new credits.

In addition, SB 2155 raises the threshold for Home Mortgage Disclosure Act (HMDA) reporting to 500 transactions per year for the trailing two years.  Only institutions which have 500 or more reportable HMDA transactions over a two year period would be required to prepare and file annual HMDA reports.  This would substantially increase the exemption presently available as current law requires a HMDA report to be submitted by any institution with over $44 million in assets and 25 or more reportable transactions each in the prior two year reporting cycle.  This exemption is especially important to community lenders who usually have lower overall volumes of reportable transactions and the proposed relief will save community lenders the substantial compliance cost under new HMDA regulations which greatly expanded the reportable data set.

SB 2155 was reported out of committee and on March 6, 2018 survived a crucial procedural vote.  The Senate is debating the bill at this time, and passage is expected to occur.  There after the bill will be reported to the House. We will keep you updated on the bill as it progresses.

If you have any questions regarding this bill or other matters regarding Consumer loan compliance, please contact Barry D. Johnson at bjohnson@settlepou.com.