Recent ICBA Advocacy Successes

Basel III capital standards. While deciding not to exclude financial institutions with consolidated assets of $50 billion or less from the capital standards as ICBA proposed, the federal banking regulators adopted final rules with a number of significant accommodations for community banks that ICBA advocated. Under the regulators’ accommodations, all banks will be able to continue using the Basel I risk weights for residential mortgages (i.e., 50 percent risk weight for exposures secured by a first lien on a one-to-four family residential property). Banks will not be subject to the more complex and onerous risk-weight schedule of Basel III, which required loan-to-value ratios to calculate risk weights for mortgages.

Additionally, banks with assets under $250 billion will have the option not to include accumulated other comprehensive income as regulatory capital. This will ensure that community bank regulatory capital ratios will be less volatile. Further, bank holding companies with assets less than $15 billion can continue to include the proceeds from trust-preferred securities as regulatory capital, consistent with the provisions of the Collins Amendment of the Dodd-Frank Act.

In the Advance Basel III measure, regulators also adopted stronger supplementary leverage requirements on the largest banking organizations. The measure imposes a 6 percent supplementary leverage ratio to the eight largest insured banking organizations and a 5 percent standard on their bank holding companies. ICBA strongly supported the proposed rule to implement enhanced supplementary leverage ratio capital standards, which target risky financial instruments that the largest institutions steer off their balance sheets.

Plan for Prosperity momentum. To date, 14 bills have been introduced in the House and Senate that incorporate specific provisions of ICBA’s Plan for Prosperity. Of particular note, the CLEAR Relief Act (H.R. 1750), introduced by Rep. Blaine Luetkemeyer (R-Mo.), contains eight Plan for Prosperity provisions, including mortgage reform, an increase in the Sarbanes-Oxley 404(b) exemption and others. The TBTF Act (S. 798), introduced by Sens. Sherrod Brown (D-Ohio) and David Vitter (R-La.), contains six Plan for Prosperity provisions in addition to higher capital requirements for the megabanks.

Qualified mortgage accommodations. The Consumer Financial Protection Bureau’s final ability-to-repay/qualified mortgage rule, released in January, makes significant accommodations for community banks for which ICBA advocated. The rule provides a compliance safe harbor for loans meeting the definition of “qualified mortgage” and includes within this safe harbor balloon mortgage loans originated and held in portfolio by small creditors serving predominantly rural or underserved areas.

Escrow requirements. The CFPB’s final rule implementing the new escrow requirement for higher-priced mortgage loans exempts creditors that make more than half of their mortgages in rural or underserved areas; have $2 billion or less in assets; make 500 or fewer mortgage loans annually; and do not escrow (with certain exceptions). The exemption applies to mortgages made to be held in portfolio.

ICBA persuaded the CFPB to broaden the exemption provided in the proposed rule due to the impact of escrow requirements on community banks. ICBA’s Plan for Prosperity calls for an exemption for all community bank loans held in portfolio, and legislation to do so has been introduced in Congress.

Freddie Mac low-activity fee. In response to concerns raised by ICBA, Freddie Mac withdrew the low-activity fee and instituted instead a “no activity” fee, which will be assessed on institutions that have not sold loans to Freddie Mac in the past 36 months and are not currently servicing loans for Freddie Mac.

Remittance transfers final rule. In April the CFPB issued a final rule that revises several problematic and unworkable provisions of the remittance transfers rule, as advocated by ICBA. In the final rule, disclosures of foreign taxes and recipient bank fees, which were required under the prior rules, are optional. Additionally, banks are no longer liable for an uncollectable loss if the consumer provides an incorrect account number, routing number or international identifier.

Mortgage officer compensation. The CFPB’s final rule on mortgage loan originator compensation and qualification incorporated numerous suggestions from ICBA. In particular, mortgage loan originators will be able to participate in both qualified and non-qualified bonus plans subject to certain conditions. The CFPB also finalized rules regarding mortgage loan originator qualification and training requirements, including background checks, which are consistent with practices currently used by community banks.

Finally, the CFPB also used its exemption authority to waive provisions of the Dodd-Frank Act that would have prohibited consumers from paying upfront points and fees.

FASB accounting decisions. The Financial Accounting Standards Board accepted ICBA recommendations related to financial accounting and reporting. First, FASB concluded that financial institutions that are not SEC registrants will be viewed as nonpublic entities, paving the way for relief for nonpublic community banks. Second, in developing the classification and measurement criteria for all financial instruments, FASB concluded that assets held with the objective of collecting contractual cash flows can be measured at amortized cost rather than fair value. Third, FASB decided to partially reverse its view that banks should disclose the fair values for loans held at amortized cost on the face of the balance sheet, a key ICBA concern.

FHA mortgage program participation. The Department of Housing and Urban Development sided with ICBA and withdrew a proposal to allow Farm Credit System lenders to participate in Federal Housing Administration mortgage insurance programs. ICBA successfully opposed legislation that required agricultural lenders to write down principal and interest on all delinquent farm loans.

FHFA servicing fee. In response to concerns raised by ICBA and other industry participants, the Federal Housing Finance Agency withdrew its proposal to significantly reduce or eliminate altogether the minimum servicing fee of 25 basis points earned for performing mortgages and implement a specific fee for non-performing mortgages.