While it's only anecdotal, the evidence is accumulating that the law of unintended consequences in the land that the man-made beast known as "Franken-Dodd" roams, is working its inexorable way through the community banking businesses, and especially that portion of the business that relates to residential mortgage lending.
One local community banker is saying his bank will no longer offer certain home loans because of new mortgage lending regulations.
Hunt Campbell, president and CEO of $117 million First Alliance Bank in Cordova, said his bank will no longer make mortgage loans to borrowers who don’t meet the standards for new qualified mortgages that went in to effect Jan. 10.
Campbell said that the bank can't generate enough non-QRM loans to make taking on the additional risk worthwhile.
According to the Federal Reserve, Campbell is not an outlier.
According to the Federal Reserve Bank of Atlanta’s latest Beige Book for the Sixth District, which includes the lower half of Mississippi and central and east Tennessee over to the Georgia-South Carolina border, some mortgage lenders have exited the mortgage lending business altogether or changed their business models because of the added risks.
Some lenders indicated they were shifting their focus from residential mortgages to small business and commercial real estate loans, the report said.
Cambell's parting words are ironic.
“The place where a bank can wind up if they’re deemed to be out of compliance in certain areas — you can get a DOJ referral and wind up fighting Eric Holder and Co.,” Campbell said. “It’s just not worth it.”
The reference to Holder is ironic because, notwithstanding lip service paid by the CFPB and other regulators that a QRM-only bank would not, by that factor alone, be deemed to be running afoul of CRA or Fair Lending laws, Holder and his crew have been champions of pushing the "disparate impact" theory to its logical limits, and beyond.
No community banker can sleep well at night knowing that there is a Catch-22 waiting to make his or her life miserable. Make non-QRM loans and make them on less favorable terms (to the borrower, at any rate) than QRM loans, to compensate you for the higher risk? Not only do you not have the benefit of the Dodd-Frank "safe harbor," you might end up with a fair lending "referral" based upon a disparate impact argument. Make only QRM loans? Disparate impact-based Fair Lending or CRA violations are not out of the picture, due to "other factors" that the regulators throw into their analysis.
In these times, given the nature of the crew manning the bridge of the good ship USA, there is no true "safe harbor" in residential lending.