Rural lenders struggling to comply with new mortgage disclosure rules are urging lawmakers to provide a grace period to help them meet the recently implemented standards.
Representatives from banks and credit unions made it clear during a Wednesday hearing of the Senate Banking Committee that they needed more time to fulfill their obligations under the Truth-in-Lending Act and Real Estate Settlement Procedures Act disclosure requirements that became mandatory on Oct. 3.
"A three- to six-month delay would be phenomenal," Terry Foster, chief executive of the $135 million-asset MCS Bank in Lewistown, Pa., said in response to a question from a committee member. "The vendor application is our biggest fear right now. We're so reliant on our vendors."
Financial institutions are also finding unpleasant surprises as they attempt to comply.
"When we flipped the switch to the new forms, we had a glitch in the system," said Carrie Wood, chief executive of Timberland Federal Credit Union in Dubois, Pa. "We dusted off the 40-year-old typewriter we had at the office, brought it out, and are hand-inputing some of that information."
The House passed a bill earlier this month that would give lenders a five-month grace period to comply with TRID disclosures. The new rules demand significant investments — in terms of time and money — from banks and their business partners.
Roger Porch, a vice president at First National Bank in Philip, S.D., said his $244 million-asset bank has only worked with only two appraisers. "One gentleman that does a lot of work for us is 80 years old," Porch said. "He's not going to last much longer."
Other challenges exist to getting suitable appraisals. "If we need to have an appraisal in the Philips of the world, finding comparables is virtually impossible," Porch said.
The number of residential appraisers has thinned down drastically since the financial crisis, decreasing by nearly 20% from 2007 to last year, Sen. Mike Rounds, R-S.D., said, while referencing research from the Appraisal Institute.
Democrats were more skeptical about whether the regulatory burden was crippling community banks.
"Small banks have essentially caught up with the big banks in terms of return on assets," Sen. Jeff Merkley, D-Ore., said. Loan growth has been "increasing at twice the rate for small banks as they were for big banks."
Wood and Foster, for their part, said they had observed opposite trends while at their institutions.
Sen. Elizabeth Warren, D-Mass., used her time to excoriate the "make-believe narrative that is pushed by lobbyists looking for sweeping changes to our financial rules, changes that would mostly help the big banks." She noted that the Dodd-Frank Act included a measure to change the calculation of Federal Deposit Insurance Corp. assessments in a way that simplified the process for small banks.
"I wonder how much your bank saved?" she asked Foster, who told Warren he did not have the numbers at hand.
"The point is that Dodd Frank included a tradeoff," Warren said. "It imposed new rules to protect consumers in our markets, necessary rules to stop the kind of behavior that led to the last crisis, and then to reduce the financial burden on community banks. It also significantly reduced the cost of insurance that those banks had to pay."