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From the chairman

By Brad Swickey
OBA Chairman

ABA Chairman Frank Keating wrote an article that appeared last Tuesday in the American Banker newspaper, concerning the Consumer Financial Protection Bureau's consideration of the definition of Qualified Mortgages. Very basically, Qualified Mortgages are mortgage loans where the lender has clearly demonstrated the borrower's ability to repay. If you didn't see it, Governor Keating exhorted the CFPB to “get this right.”

I couldn't agree more. If the CFPB doesn't get this one right, then the only recourse bankers may have is to make loans to high income borrowers with high personal net worth's with which to absorb any economic or personal downturn. That means thousands of deserving Oklahomans and millions of Americans may not enjoy the benefits and personal esteem of homeownership. Homeownership is vital to our economy and the above scenario could potentially be catastrophic and set our national economy back years if not decades.

While I agree with Governor Keating's conclusions, I find the Qualified Mortgage concept to be repugnant and incompatible with a capitalist economy. Let me explain why.

First of all, a loan agreement is a contract. Among the many conditions of an enforceable contract are the requirements that the parties to the contract are of sound mind and are operating under their own free will and that there has been a “meeting of the minds” in that one party offers terms and the other party accepts those terms. It is both parties obligation to act within the bounds of the law. So why has Congress passed a requirement in Dodd-Frank that requires us as bankers/lenders to demonstrate that a borrower acting under their own free will is capable of entering into the contract? Is that even possible? Isn't that one of the borrower's responsibilities; to determine if they can meet the obligations of the contract? The real question is why is this Qualified Mortgage concept being imposed upon mortgage loan contracts? Why should one party to a contract be held accountable for the other party's ability to perform under the contract? After all, if either party to the contract is unable to comply with what they under their own free will promised to do, then there are already remedies of law that can be brought to bear. Therefore, it should be the borrower's obligation to demonstrate to the lender that they are capable of entering into the contract; not the lender's obligation to demonstrate to a disinterested third party regulator that every borrower is entering into the loan contract wisely.

This leads me to the second question; why are bankers not being allowed to assess and take risks within their own predetermined lending policies or if the loan is going to be sold, within the ultimate buyer's lending policies? Isn't that what has fueled both housing and entrepreneurship from the beginning of our capitalist economy? Indeed, it is what has made America the greatest engine of economic growth in the history of the world. It is now being imperiled by this government interference in the free market.

Finally, can we ever treat every American equally from a credit standpoint in this country? Should that really be our goal? If we so homogenize our industry that no risk is taken based upon our knowledge and understanding of our customers and communities and yes, sometimes just gut willingness to take a chance on certain borrowers, are we really serving our communities? Isn't our willingness to or not to take certain risks what creates a completive banking environment which unquestionably benefits our present and potential customers? Individual banker's willingness to take measured risk in lending versus some unwavering credit scoring model is the difference between communities thriving or simply surviving.

So, yes I agree with Governor Keating that the CFPB should carefully consider the definition of a Qualified Mortgage. However, I believe we should also be telling our congressional delegations that put this ridiculous notion in Dodd-Frank to begin with, to carefully consider the unintended consequences of this part of their legislation and repeal or modify it. If they do not, then the potential unintended consequence could be that the government will conclude that bankers are being too cautious, setting their underwriting bar too high to avoid criticism or penalties and like student loans, the government will conclude that it needs to take over mortgage lending in America. Perhaps that consequence isn't so unintended after all!

 

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Credit union power grab effort likely during lame duck session

During the “Lame Duck” Session of the 112th Congress that begins in earnest today, we're told that the credit union industry is going to make a concerted effort to get their bill passed. S. 2231 was introduced by Sen. Mark Udall (D-Colo.) and is intended to significantly increase the ability of credit unions to make commercial loans.

Given their current tax-exempt status, this increase means more significant competition for every commercial bank in the country, including yours. They will be able to beat your rate on these types of loans – which are the “sweet spot” for many community banks – because of the credit unions' distinct tax advantage. The result will be further pressure imposed on your bank's earning capacity.

We're asking you to call or email our two U.S. Senators and let them know two things: First, you appreciate their past support for community banking by opposing the efforts by tax-exempt credit unions to expand their lending activities and second, to state your opposition to the proposed credit unions' power grab to increase their commercial lending authority.

Here is what you can say when calling the Senators office.

1. Hi my name is ____, and I'm calling (emailing) first to thank Senator Inhofe / Coburn for his past support for traditional community banks like mine, and second, to ask him to oppose S. 2231. This bill would allow credit unions to increase their ability to make commercial loans.

2. Credit unions do not pay state or federal income taxes and, in addition, federal credit unions do not pay any state sales or use taxes. Moreover, credit unions are not subject to the Community Reinvestment Act, and many other regulations that protect consumers.

3. S. 2231 would only benefit 25 large multi-billion dollar credit unions in the nation. Many smaller credit unions have come out publically opposing this power grab by the large credit unions.

4. A family of four should not have to pay more in state and federal taxes than a billion dollar credit union. Please ask Senator Inhofe/Coburn to oppose this bill.

Senator Inhofe's phone number in Washington is 202-224-4721 and Senator Coburn's number is 202-224-5754. Direct email addresses to their banking assistants are luke_holland@inhofe.senate.gov and drew_berky@coburn.senate.gov.

Thank you for your help on this critical issue for Oklahoma bankers!

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Friends of Traditional Banking made an impact, continues to grow

Friends of Traditional Banking, a group organized earlier this year to target specific Congressional races important to their industry, made a big impact in the 2012 race and continues to gain momentum.

“We now have hundreds of members in 30 states, and we were able to energize them to donate directly to Sen. Scott Brown's race in Massachusetts and Sen. Dean Heller's race in Nevada,” said Matt Packard, CEO and president of Central Bank in Provo, Utah and chair of Friends of Traditional Banking.

“Over two hundred thousand dollars from our allies poured into those two very close races,” said Rick Sanborn, CEO and president of Seacoast Commerce Bank in San Diego, and a board member of Friends of Traditional Banking. “It was a fantastic effort by an organization that has been around just a few months,” he said.

Although Scott Brown did not prevail in his close Massachusetts contest with Elizabeth Warren, Heller held off a challenge by Rep. Shelley Berkley by a narrow 45.9% to 44.7%. The support by Friends of Traditional Banking was a critical part of the coalition that led to his victory in a very close race.

“I am so grateful” said Senator Heller in a statement after the election. “This was a hard fought campaign,” he said, and he is looking forward to resuming his work in Washington where, in his words, “we must pass policies that encourage entrepreneurship and allow the middle class to thrive.”

Senator Brown appreciated the many efforts in his race, as well. “I couldn't have asked for better allies and friends to see it through,” he said on Election Night. “There are not words to express the gratitude I feel.”

Friends of Traditional Banking is already looking to 2014, when they hope to make an even bigger impact on key Congressional contests. “We were able to aim hundreds of thousands at races this time, and are working to make that a few million next time,” said John Boyer, CEO and chairman of Kanza Bank in Kingman, Kansas and a Friends of Traditional Banking board member.

To learn more about Friends of Traditional Banking see www.friendsoftraditionalbanking.com or their new introductory video at http://www.youtube.com/watch?v=yBOD00inRvQ&feature=plcp.

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ABA comments on FHA audit

According to a recent audit of the Federal Housing Administration, the Agency is projected to have more than $16 billion in losses this year. The ABA issued the following response to that announcement:

“The Congressionally required independent audit of the Federal Housing Administration is a troubling if not surprising reminder of the importance of balancing prudent underwriting and down payment requirements with efforts to serve borrowers who may otherwise not be able to access credit.

“The erosion of the FHA's insurance fund does not come as a surprise. It is widely known that FHA, like much of the rest of the mortgage market, suffered from poor loan quality in the recent past. How FHA – and potentially policy makers in Congress – deal with the erosion will be of vital importance.

“FHA must be made sound and able to function without taxpayer subsidy. Achieving that goal must be done in a way that does not drive private lenders from participating in the FHA program by making the process overly bureaucratic and lacking in certainty. It also must balance the needs of borrower's with good credit but limited down payment resources with the needs of the program to impose more sound underwriting and down payment requirements.

“The task will not be easy, but is necessary not just to preserve FHA, but also the broader mortgage market. The ABA stands ready to engage and assist as the process moves forward.”

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Standard mileage rates go up in 2013

Optional standard mileage rates for use of a vehicle will go up by 1 cent per mile for 2013, the IRS said Wednesday (Notice 2012-72). Taxpayers can use the optional standard mileage rates to calculate the deductible costs of operating an automobile.

For business use of a car, van, pickup truck, or panel truck, the 2013 rate will be 56.5 cents per mile. Driving for medical or moving purposes may be deducted at 24 cents per mile. Both rates are 1 cent higher than for 2012.
The rate for service to a charitable organization is unchanged, set by statute (Sec. 170(i)) at 14 cents a mile.

The portion of the business standard mileage rate that is treated as depreciation will be 23 cents per mile for 2013, unchanged from 2012.

For purposes of computing the allowance under a fixed and variable rate (FAVR) plan, the maximum standard automobile cost for 2013 is $28,100 for automobiles (not including trucks and vans) or $29,900 for trucks and vans, increases of $100 and $600, respectively, from 2012. Under an FAVR plan, a standard amount is deemed substantiated for an employer's reimbursement to employees for expenses they incur in driving their vehicle in performing services as an employee for the employer.

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OMBA presents CFPB training session

The Oklahoma Mortgage Bankers Association will be presenting a CFPB update session on Friday, Nov. 30. This half-day session will provide training in compliance and regulations. Click here for more information.

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OBA education corner ... 

Even though the year is beginning to wind down, our education department is staying busy. Among seminars and webinars to keep an eye on are:

  • Overview of CRE Appraisal Guidelines & Review Process, Dec. 3, webinar, 1:30 p.m. — Check the OBA education calendar on Tuesday for additional information.
  • Security Function Seminar, Dec. 6, Oklahoma City — This is our annual security-related seminar. If you are your institution's Security Officer, your primary duty is to develop and administer a written Security Program for your institution. This program will help you do so and more!
  • Approaches to Value in a CRE Appraisal, Dec. 10, webinar, 1:30 p.m. — Check the OBA education calendar on Tuesday for additional information.
  • IRA Basics seminar, Dec. 11, Tulsa and Dec. 13 Oklahoma City — These sessions are designed for those with limited IRA experience. The focus is basic: IRA terminology, explanation of IRA forms, qualifications and beneficiary designations.
  • IRA Update/Review seminar, Dec. 12, Tulsa and Dec. 14 Oklahoma City — These seminars will provide the experienced IRA banker with answers to complex questions, regulation changes and clarifications. Every bank should have a knowledgeable staff who can work with customers to meet their IRA needs. These sessions will provide the comprehensive training needed.

 

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