January 15, 2014

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Banking and Finance

January 15, 2014

LUIKART: My overall view is the number of people that are underbanked in this country has multiplied over the last five years. More and more people can’t get accounts with banks, so they go to alternative sources. That piece just continues to grow. I’m not an expert on the consumer side at all, but the challenges the consumer faces are huge because of regulations, what they put them through.

CAMARELLA: When 2008 hit and all of us were impacted on the consumer side, the retail side, the commercial side, there were some major changes, especially regarding stated income loans. Now you have to prove that you can pay for the house or the car that you want to purchase. We set the ground rules, and we still live by those today. So we haven’t changed, whether it’s the business side or the consumer side, in terms of how we’re qualifying people.

People are borrowing again. Individuals—if they’re employed, if they’re not over-encumbered, if they’re living realistically—can still obtain credit. We are all lending. But there’s still that uncertainty. There are consumers who are saying I don’t want to over-encumber.

We have a new regulatory agency called the Consumer Financial Protection Bureau. It’s unclear quite how this is going to relate to all of the other regulatory agencies over banks. What kinds of rules, what kind of impacts do you see this new regulatory agency having?

LEARY: Well, its focus is not safety and soundness of the industry. Its focus is consumer protection. So across the spectrum of the banking community, you suddenly have safety and soundness as an equal partner in consumer protection.

It’s a dynamic that will be played out over the next few years. Clearly there will be some “tussles,” if you want to use that term, between the federal agencies as they establish what their respective roles are. 

As a state regulator, we still have to deal with both. Ironically, when Congress created the CFPB, they mandated the CFPB work with the states and through the states. So I’m spending almost as much time with CFPB folks as I do with federal agency folks, which was unheard of just three years ago. It didn’t even exist three years ago.

HOWELL: We visited all the regulators about a month ago, including the CFPB, and they seemed to have sharper teeth than the other agencies. The other agencies were quick to say, “Yes, but we regulate the banks, not the CFPB.” But the challenge is that they’re driving through additional regulation on the mortgages. That has to be done by Dec. 31.

We’d like to see some relief in that our bank is ready for that deadline, but it has taken a lot of work to get there. Many banks are struggling to get ready for that deadline. I think the banking regulators are going to smooth that. I don’t think it’s going to be catastrophic.

But the CFPB is still really pushing. If you’ve noticed, there’s lots of fines coming out from the CFPB, not to banks because they don’t regulate the banks, but to other agencies they do regulate. Here we have a whole new level of regulation—the qualified mortgage and the unqualified mortgage. It’s very difficult now to do unqualified mortgages under the CFPB guidelines. They say you can do them, but you can’t really do them because of the way the regulation is. That will impact consumers that are trying to get that credit.

PACKARD: I was in the same meeting as Mark, and they pled with us to keep doing nonqualified mortgages. This “ability to pay” rule came out, which I thought was a unique idea—that actually somebody could have to qualify to pay for a loan—and yet they promote this like this is a new idea to us.

Let me give you an example. Let’s say a dentist gets out of school, and his wife and he have been in medical school or dental school for years and years, and she’s tired of renting, and she wants a home. You look at the tax returns to qualify them. They’re going to make $12,000 last year and the last two or three years. They could never buy a home.

So the new rule creates so many challenges that put back liabilities to the institution, some of those kinds of things that are very troubling to a bank as to why we would make a nonqualified loan to them. You look at that dentist or doctor and say, that person is going to be fine. We’d love to make a mortgage. We’d like to develop a relationship with them. But these new qualified mortgage rules are making it very difficult and hard to do, because they don’t have documentation that shows their ability to pay.

PACKARD: We’ve done hundreds of those through the years, and you don’t have problems with those. The ability to service the market and to help people accomplish their dreams becomes very prohibitive with these new regulations. The market forces, if you get out of line, at least in Utah Valley, are pretty responsive. The public opinion goes against you. Your reputation is always on the line. So it’s troubling to see them try to make one-size-fit-all rules. That’s not the market. It’s not science; it’s an art form.

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