Banks need more time to get ready for new mortgage lending rules due to take effect Jan. 1, the head of an industry trade group said Tuesday in Omaha.
Without a delay of six months to a year, some banks will stop or cut back mortgage lending to avoid legal problems and other issues, said Matthew Williams, a Nebraska banker who is chairman of the American Bankers Association.
The request for a delay is pending at the federal Consumer Financial Protection Bureau, the agency that is enforcing part of the Dodd-Frank Act. The law is designed to prevent future financial crises and strengthen lending practices.
The “quality mortgage” rules are intended to prevent abuses such as loans to people who can’t repay them and loans that are too big in relation to the value of the real estate.
Williams, who spoke at a conference at the Hilton Omaha sponsored by banking software company WebEquity Solutions of Omaha, said bankers agree with strong, fairly enforced regulations, including the pending mortgage lending rules.
But software companies are still developing the programs that banks need to follow the new rules, he said, and once the systems are complete it will take time to test them, train personnel and put them into effect.
In July, more than 50 banking groups, including the Nebraska and Iowa affiliates of the American Bankers Association, signed a letter asking for the mortgage rules to be delayed so that loans by high-quality lenders won’t be disrupted by a “rush to compliance.”
Richard Cordray, director of the bureau, has said banks are making strides to put the mortgage rules into effect and the bureau is helping. Last week, he said it is “critical to move forward so that these rules can deliver the new protections intended for consumers and the certainty that the industry has been seeking.”
Williams, who is chairman and president of Gothenburg (Neb.) State Bank, said he talked in July with Valerie Jarrett, a senior adviser to President Barack Obama, about the mortgage rules and other issues.
“She listened, and I think we have a chance” for a delay in the mortgage rules, he said.
But toward the end of their conversation, he asked her what the banking industry could do for the Obama administration. According to Williams, she said, “You can do one thing — make loans.”
Williams said Tuesday: “I was appalled that the administration thinks banks are intentionally not making loans. She believes that. Isn’t that our job?”
Williams said he told Jarrett, “Our business is loaning money, but you (the administration) have created roadblocks to stop us from doing what we do best. That’s our lifeblood as bankers.”
In response, a White House official said Tuesday that Jarrett was “simply making the very important point that while financial institutions have taken important steps to increase access to capital, there’s more work the industry could do to increase lending to consumers and small businesses that would help our economy continue to grow and create jobs.”
Williams said that despite occasional problems with regulations, the U.S. bank regulatory system is one reason the nation’s banking industry is the strongest in the world.
Regulations are “indispensable to our country’s success,” he said. Properly enacted and enforced, the regulatory system keeps the banking industry healthy and allows responsible lending that creates jobs.