Reg Z Rule Proposal Risks Unintended Consequences For Community Banks, CSBS Says

Posted by Orb Staff on October 29, 2010 No Comments
Categories : Residential Mortgage

The Conference of State Bank Supervisors (CSBS) has called for broader exemptions from rules under Regulation Z for institutions that hold the credit risk for residential mortgage loans. The CSBS comment letter was in response to the Federal Reserve Board's Proposed Rule on Regulation Z.

The proposed rule revises the escrow account requirements for higher-priced, first-lien jumbo mortgages. The CSBS urges the Federal Reserve Board to go beyond the specific requirement included in the Dodd-Frank Act in order to facilitate more traditional residential mortgage lending.Â

Claiming concern over the possible unintended consequences of the Reg Z rule, the CSBS says the proposed rule runs the risk of forcing traditional community banks out of the residential mortgage market.

"Institutions which portfolio mortgage loans have a greater incentive to ensure a borrower's ability to repay and fund the total cost of homeownership, including property taxes and insurance," wrote CSBS President and CEO Neil Milner in the comment letter. "This dynamic needs to be considered as rules and standards are determined."

The CSBS is recommending that the Federal Reserve Board hold field meetings to gather community bankers' input on the impact of the proposed rule.

SOURCE: CSBS

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