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THE STATE OF BANK 

LENDING IN AMERICA 

HEARING 

BEFORE THE

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS 

AND CONSUMER CREDIT 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FIFTEENTH CONGRESS 

FIRST SESSION 

MARCH 28, 2017 

Printed for the use of the Committee on Financial Services 

Serial No. 115–11 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

JEB HENSARLING, Texas, Chairman 

PATRICK T. MCHENRY, North Carolina, 

Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

STEVE STIVERS, Ohio 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

KEITH J. ROTHFUS, Pennsylvania 

LUKE MESSER, Indiana 

SCOTT TIPTON, Colorado 

ROGER WILLIAMS, Texas 

BRUCE POLIQUIN, Maine 

MIA LOVE, Utah 

FRENCH HILL, Arkansas 

TOM EMMER, Minnesota 

LEE M. ZELDIN, New York 

DAVID A. TROTT, Michigan 

BARRY LOUDERMILK, Georgia 

ALEXANDER X. MOONEY, West Virginia 

THOMAS MacARTHUR, New Jersey 

WARREN DAVIDSON, Ohio 

TED BUDD, North Carolina 

DAVID KUSTOFF, Tennessee 

CLAUDIA TENNEY, New York 

TREY HOLLINGSWORTH, Indiana 

MAXINE WATERS, California, Ranking 

Member 

CAROLYN B. MALONEY, New York 

NYDIA M. VELA ́ ZQUEZ, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JAMES A. HIMES, Connecticut 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

JUAN VARGAS, California 

JOSH GOTTHEIMER, New Jersey 

VICENTE GONZALEZ, Texas 

CHARLIE CRIST, Florida 

RUBEN KIHUEN, Nevada 

KIRSTEN SUTTON MORK, Staff Director 

(III) 

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT

BLAINE LUETKEMEYER, Missouri, Chairman 

KEITH J. ROTHFUS, Pennsylvania, Vice 

Chairman 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

BILL POSEY, Florida 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANDY BARR, Kentucky 

SCOTT TIPTON, Colorado 

ROGER WILLIAMS, Texas 

MIA LOVE, Utah 

DAVID A. TROTT, Michigan 

BARRY LOUDERMILK, Georgia 

DAVID KUSTOFF, Tennessee 

CLAUDIA TENNEY, New York 

WM. LACY CLAY, Missouri, Ranking 

Member 

CAROLYN B. MALONEY, New York 

GREGORY W. MEEKS, New York 

DAVID SCOTT, Georgia 

NYDIA M. VELA ́ ZQUEZ, New York 

AL GREEN, Texas 

KEITH ELLISON, Minnesota 

MICHAEL E. CAPUANO, Massachusetts 

DENNY HECK, Washington 

GWEN MOORE, Wisconsin 

CHARLIE CRIST, Florida 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

March 28, 2017 ................................................................................................. 1 

Appendix: 

March 28, 2017 ................................................................................................. 39 

WITNESSES 

TUESDAY, MARCH 28, 2017 

Calhoun, Michael D., President, Center for Responsible Lending ...................... 9 

Heitkamp, R. Scott , President and Chief Executive Officer, ValueBank Texas, 

on behalf of the Independent Community Bankers of America (ICBA) .......... 4 

Motley, J. David, President, Colonial Savings, F.A., on behalf of the Mortgage 

Bankers Association (MBA) ................................................................................. 7 

Wade, Holly, Director, Research and Policy Analysis, National Federation 

of Independent Business (NFIB) ......................................................................... 5 

APPENDIX 

Prepared statements: 

Calhoun, Michael D. ......................................................................................... 40 

Heitkamp, R. Scott ........................................................................................... 60 

Motley, J. David ................................................................................................ 73 

Wade, Holly ....................................................................................................... 86 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Luetkemeyer, Hon. Blaine: 

Written statement of the Credit Union National Association ...................... 90 

Barr, Hon. Andy: 

Chart entitled, ‘‘FACT: Business lending has increased 75% after DoddFrank’’ ............................................................................................................ 92 

Hill, Hon. French: 

Article from The Hill entitled, ‘‘Why we must base the banking regulation 

debate on real data,’’ by Paul H. Kupiec of the American Enterprise 

Institute ......................................................................................................... 93 

(1) 

THE STATE OF BANK 

LENDING IN AMERICA 

Tuesday, March 28, 2017 

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

AND CONSUMER CREDIT, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 2:02 p.m., in room 

2128, Rayburn House Office Building, Hon. Blaine Luetkemeyer 

[chairman of the subcommittee] presiding. 

Members present: Representatives Luetkemeyer, Rothfus, Royce, 

Lucas, Posey, Ross, Barr, Tipton, Williams, Love, Trott, 

Loudermilk, Kustoff, Tenney; Clay, Meeks, Green, Heck, and 

Moore. 

Ex officio present: Representative Hensarling, 

Also present: Representative Hill. 

Chairman LUETKEMEYER. The Subcommittee on Financial Institutions and Consumer Credit will come to order. 

Without objection, the Chair is authorized to declare a recess of 

the subcommittee at any time. And with regards to that, we are 

expecting votes around 3:00. I am not sure how long they will be, 

but it shouldn’t probably take much more than an hour, but we will 

see, give or take some time. But we do anticipate that happening, 

so we hope everybody will be able to bear with us. 

Today’s hearing is entitled, ‘‘The State of Bank Lending in America.’’ 

Before we begin, I would like to thank the witnesses for appearing today. We appreciate your participation and look forward to a 

robust conversation. 

I now recognize myself for 5 minutes for an opening statement. 

In her testimony before the Senate Banking Committee last 

month, Chair Yellen painted a rosy picture of economic recovery 

and widespread credit availability. Chair Yellen supported her assertion by referring to the study conducted by one of our witnesses 

today, Holly Wade of the National Federation of Independent Businesses (NFIB). 

What Chair Yellen neglected to mention was that half of the 

small businesses surveyed by NFIB said that while they were optimistic about the future, they were still sitting on the credit sidelines. She also failed to highlight the fact that 37 percent of smallbusiness respondents said that taxes, regulations, and red tape 

were their top business problems. Simply put, the picture she 

2 

painted last month doesn’t match the reality that small businesses 

and their employees live every day. 

Like so many others in Washington, I don’t think she quite gets 

it. The truth of the matter is that we have what some have referred to as a two-speed economy. Since the 2016 elections, consumer confidence is high, unemployment rates are trending down, 

and the economy is starting to show signs of life. While the Nation’s economic health may be improving, many of her citizens continue to face significant headwinds as they seek to grow their businesses or build a better life for their family. 

So today we will scratch beneath the surface to examine what is 

happening in our economy and how it is impacting American consumers and small businesses. The unfortunate reality is that a significant number of borrowers are, and Ms. Wade’s work demonstrates, sitting on the sidelines. And small banks, consumers, 

and small businesses continue to operate in a stalled economy with 

limited access to credit. 

Data from the Federal Reserve Bank of St. Louis indicates that 

in the years before passage of the Dodd-Frank Act, small-bank 

lending was more than 150 percent above large-bank lending. In 

the 6 years after Dodd-Frank, small-bank lending was almost 80 

per cent below large-bank lending. And the reality is that community financial institutions are the primary small-business lenders. 

Today, nearly half of small businesses and startups don’t get the 

financing they seek. And the situation for consumers who have a 

less-than-pristine credit history or collateral isn’t as bright as it 

should be. 

This week, the New York Fed released a study indicating that one in three Americans couldn’t come up with $2,000 if faced with 

an emergency. So despite seemingly low unemployment rates, people are still living paycheck to paycheck, preventing them from 

achieving the economic stability all Americans deserve. 

Despite the rhetoric fed to us since its passage, consumers and 

small businesses haven’t been protected by Dodd-Frank. Rather, 

the rules and regulations billed as a pathway to a stable economy 

have stifled small-business institutions and led to more restricted 

access and much more expensive credit. 

Even the Consumer Financial Protection Bureau (CFPB), which 

purports to protect consumers, has smothered innovation and financial products that Americans want and need. The result is that 

consumers and small businesses, the drivers of our economy, are 

left sitting on the sidelines and struggling to survive. 

Today’s conversation may be one of the more important ones that 

we have. It will serve to examine an alarming trend that should 

be on the front page of every newspaper in America, and to better 

understand the actual impact the regulatory climate has on banks 

and their customers. 

I thank our witnesses for their time today and look forward to 

your testimony. 

The Chair now recognizes the ranking member of the subcommittee, the gentleman from Missouri, Mr. Clay, for 5 minutes 

for an opening statement. 

Mr. CLAY. Thank you, Mr. Chairman, for calling today’s hearing 

to examine the state of bank lending. 

3 

And I thank the witnesses for participating in today’s hearing. 

Prudent bank lending is key to a sound banking system and a 

strong economy. Excessive bank lending without appropriate safeguards has proven to lead to a devastating financial crisis. This is 

why Dodd-Frank focused on restoring reasonable safeguards to better protect consumers from the kind of predatory lending that hurt 

so many people just a few years ago. 

Despite assertions by President Trump and our friends on the 

other side of the aisle that community banks and lending was 

crushed because of Dodd-Frank, the data tells a different story. As 

Joe Friday used to say, ‘‘Just the facts, ma’am.’’ And here they are. 

Banks have done quite well in the past few years and posted an 

all-time record in profits in 2016, making more than $171 billion. 

The number of unprofitable banks has not been this low since 

1995, more than 2 decades ago. Very few small-business owners report problems getting access to credit when they want it. And in 

fact, bank loans to businesses also hit an all-time high after increasing by 75 percent since Dodd-Frank became law. 

And how are community banks doing? According to recent FDIC 

data, community banks are outpacing their larger competitors. 

Community bank lending increased by more than 8 percent last 

year and they increased small loans to businesses at more than 

twice the rate of their peers. Community bank annual profits rose 

by more than 10 percent over the prior year. 

In the words of a Houston Chronicle article for my friend from 

Texas, ‘‘Alternative facts underlie Trump’s push to ditch Wall 

Street regulations.’’ Dodd-Frank isn’t making it harder for businesses to get loans. 

And I hope with today’s hearing we examine the real facts and 

have a good discussion on sensible, targeted steps, not ideological 

rollbacks of Dodd-Frank, that we should consider to help small 

banks continue to lend responsibly to our community. 

And, Mr. Chairman, with that, I yield back. 

Chairman LUETKEMEYER. The gentleman yields back. And I 

thank him for his statement. 

We will now turn to our witnesses. 

First, we welcome the testimony of Mr. Scott Heitkamp, president and chief executive officer of ValueBank Texas, who is testifying on behalf of the Independent Community Bankers of America. 

And I understand he needs to leave at about 4:30 to catch a 

plane, otherwise he is going to be stuck in our beautiful city here 

for a while, and I don’t wish that on anybody, especially if you are 

not a tourist, and so we will excuse him. So heads up to all the 

Members, if you do have some questions of Mr. Heitkamp, please 

make sure you get those out first. 

Second, Ms. Holly Wade, who is the director of research and policy analysis at the National Federation of Independent Business. 

We welcome you. 

Third, Mr. David Motley, the president of Colonial Savings, who 

is testifying on behalf of the Mortgage Bankers Association. Welcome. 

And Mr. Michael Calhoun, who is the president of the Center for 

Responsible Lending. Welcome. 

4 

Each of you will be recognized for 5 minutes to give an oral presentation of your testimony. And without objection, each of your 

written statements will be made a part of the record. 

So with that, I recognize Mr. Heitkamp. You are recognized for 

5 minutes. 

STATEMENT OF R. SCOTT HEITKAMP, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, VALUEBANK TEXAS, ON BEHALF OF 

THE INDEPENDENT COMMUNITY BANKERS OF AMERICA 

(ICBA) 

Mr. HEITKAMP. Thank you, Chairman Luetkemeyer, Ranking 

Member Clay, and members of the subcommittee. My name is Scott 

Heitkamp and I am president and CEO of ValueBank Texas in 

Corpus Christi Texas. I am also chairman of the Independent Community Bankers of America and I am testifying today on behalf of 

the more than 5,800 community banks we represent. 

Thank you for convening today’s hearing on the state of bank 

lending in America. Despite some recent, positive news on the state 

of bank lending, now is not the time to be complacent. From my 

viewpoint as a community banker in south Texas, and from my 

conversations with hundreds of community bankers from around 

the country, I promise you that the economic recovery is lukewarm, 

uneven, and fragile. This view is supported by data that when broken down, shows a recovery that is mixed at best with notable regional differences in need of strong solutions. 

Today, a customer with a pristine credit score or a large, established business can get a loan. But this isn’t the measure of a 

strong economy. When the credit box is tight, we have subpar economic growth. To break out of this rut and strengthen economic 

growth, we must expand credit availability to millions of hardworking households and would-be borrowers with less-than-perfect 

credit scores. Many of these borrowers are in the middle to lower 

end of the income scale. 

Today’s regulatory environment has choked off community banks’ 

ability to take on and manage reasonable credit risk. Before I discuss ICBA’s recommendations, I would like to give you some background on my bank. 

ValueBank Texas was chartered in 1967 and later acquired by 

my father. I am proud to carry on that legacy. Today, ValueBank 

Texas is a $213 million bank with 10 offices in Corpus Christi and 

Houston and 114 employees. We specialize in small-business and 

residential mortgage lending. 

As our name suggests, we are dedicated to creating value for our 

customers and our community. We are like thousands of community banks across the country with a vested interest in the success 

of our communities we serve today and for generations to come. 

Unfortunately, the number of community banks is rapidly declining. Today, there are some 1,700 fewer community banks than 

there were in 2010. This historic consolidation will harm competition and leave many small communities stranded without a local 

community bank. Any review of the health of today’s community 

banking industry must take into account consolidation and a lack 

of de novo charters. 

5 

I believe this consolidation and the lack of charter formation is 

due to the rise in regulatory burden. Today’s banks need a larger 

scale to amortize the sharply increased costs of compliance. These 

same costs have a chilling effect on new charters. We need regulatory relief that will slow the consolidation trend, and encourage 

new charters, creating a more vibrant financial system for the benefit of our customers and small-business owners. 

According to a recent Urban Institute study, tight credit killed 

1.1 million mortgages in 2015 alone. These would-be borrowers are 

people with lower credit scores and lower incomes. The study found 

that tight credit was directly related to regulatory restrictions. 

One of the bright spots in today’s economy is a surge in optimism 

among small-business owners as shown in the NFIB survey. This 

optimism will lead to a growing demand for credit and we must ensure the regulatory environment allows community banks to meet 

that demand. 

The good news is that we have solutions. ICBA’s plan for prosperity is a robust regulatory relief agenda with nearly 40 recommendations that will allow Main Street and rural America to 

prosper. A copy of that plan is attached to my written statement. 

This committee’s work in the last Congress set the stage for enacting meaningful regulatory relief. I want to highlight the CLEAR 

Act, soon to be reintroduced by Chairman Luetkemeyer. I also look 

forward to the reintroduction of Chairman Hensarling’s Financial 

CHOICE Act. These bills, among others before the committee, are 

all part of the solutions to regulatory burden. 

We strongly encourage this committee to complete the work that 

was started in the last Congress and enact meaningful regulatory 

relief for community banks. 

Thank you again for this opportunity to testify, and I look forward to your questions. 

[The prepared statement of Mr. Heitkamp can be found on page 

60 of the appendix.] 

Chairman LUETKEMEYER. Ms. Wade, you are now recognized for 

5 minutes. 

STATEMENT OF HOLLY WADE, DIRECTOR, RESEARCH AND 

POLICY ANALYSIS, NATIONAL FEDERATION OF INDEPENDENT BUSINESS (NFIB) 

Ms. WADE. Good afternoon, Chairman Luetkemeyer, Ranking 

Member Clay, and members of the Subcommittee on Financial Institutions and Consumer Credit. Thank you for the opportunity to 

testify today on the state of bank lending in America. 

Small businesses’ ability to access financing is a vital component 

of a healthy small-business sector. Small businesses rely on financing for general business operations, but also expansion activities 

and reinvestment. 

NFIB regularly studies banking activities and borrowing trends 

among small-business owners. NFIB’s small-business economic 

trends survey offers a monthly update on borrowing and lending 

trends among a random sample of NFIB’s 325,000 small-business 

members, a survey NFIB has conducted since 1973. 

Since the recession, loan demand has remained historically weak, 

even with record-low interest rates still available. The percent of 

6 

regular borrowers has remained in the low 30s with little pick-up 

throughout the recovery, whereas previous expansions experienced 

a level of regular borrowing closer to 40 percent. High numbers of 

firms remain on the credit sidelines seeing no good reason to borrow. 

The survey also asks owners if they were able to satisfy their 

borrowing needs over the last 3 months. In recent years, about 4 

percent report that they were not able to satisfy their borrowing 

needs, significantly lower than the record high of 11 percent 

reached in 2010. 

These trends are further reflected in NFIB’s small-business problems and priorities survey that asks small-business owners to 

evaluate 75 business-related problems. From 2012 to the current 

2016 report, financing has become less of an issue for many owners 

with fewer interested in borrowing due to slow economic growth, 

but also due to better balance sheets for those seeking credit. 

The ranking for obtaining long-term and short-term business 

loans both fell precipitously from 2012 to 2016. The former fell 13 

positions to its current ranking of 69 out of 75 issues, and the latter 12 positions to the ranking of 70th. The percent of owners finding each a critical issue also fell from about 11 percent to 6 percent 

in the current report. 

But there are a few pockets of small businesses that do have 

more difficulty accessing credit than the general population: businesses experiencing declining sales of more than 10 percent; and 

those experiencing rapid growth of 50 percent or more over the last 

3 years. The difficulties of the former are generally self-explanatory, but the latter is of significant concern, as those businesses 

generate jobs and economic growth. 

For example, obtaining short-term and long-term loans currently 

ranks 39th and 42nd, respectively for high-growth firms, roughly 

30 positions higher than the ranking for the overall population. 

And more than twice as many owners find each a critical issue. 

The reasons why high-growth small businesses have a more difficult time obtaining credit compared to years past are less obvious. 

But the decline in the number of small community banks is of particular concern. Small-business owners are far more successful accessing credit through smaller regional banks than larger ones. 

A recent Federal Reserve survey found that while 76 percent of 

small-business applicants were approved for some credit at small 

banks, only 58 percent were approved at larger banks. The downward trend of commercial banks is not new. But over the last 8 

years, the number of commercial banks has dropped from about 

7,000 in 2009 to its current level of about 5,000. 

The importance of these banks cannot be overstated for small 

businesses, but also for the banking system itself. NFIB worries 

that overregulating these smaller community banks will create 

more bank consolidation and deter new bank formations. Loans to 

these small businesses are critical to the health of local communities and, collectively, to the health of the small-business sector. 

With recent improvements in small-business optimism, owners 

are in a good position to grow and reinvest in their business. If this 

occurs, borrowing activities should pick up. Market forces, not regulators in Washington, should manage the supply and price of 

7 

banking services and loans so that small-business financing remains available for a potential increase in small-business borrowing. 

I appreciate the opportunity to discuss the current state of smallbusiness financing and the challenges that face us going forward, 

and I look forward to working with the committee to support small 

businesses and strengthen the U.S. economy. 

Thank you. 

[The prepared statement of Ms. Wade can be found on page 86 

of the appendix.] 

Chairman LUETKEMEYER. Thank you, Ms. Wade. 

Mr. Motley, you are now recognized for 5 minutes. 

STATEMENT OF J. DAVID MOTLEY, PRESIDENT, COLONIAL 

SAVINGS, F.A., ON BEHALF OF THE MORTGAGE BANKERS ASSOCIATION (MBA) 

Mr. MOTLEY. Chairman Luetkemeyer, Ranking Member Clay, 

and members of the subcommittee, I appreciate the opportunity to 

testify this afternoon on behalf of the Mortgage Bankers Association. 

MBA represents mortgage lenders of all sizes and business models, from small, independent mortgage bankers to community 

banks like mine, to the Nation’s largest financial institutions. Each 

segment of our industry plays a unique and vital role in the market. 

As a 4-decade veteran of the mortgage industry, I can tell you 

from experience that recently enacted laws have created commendable consumer protections and have made the mortgage market a 

safer place to do business. 

MBA has consistently supported reasonable requirements that 

will prevent a reemergence of housing and market disruptions. 

However, we must be mindful that new regulatory demands imposed under Dodd-Frank have also negatively impacted the availability and affordable and sustainable mortgage credit. 

MBA’s data show that mortgage credit availability remains far 

below history norms. As a result, many borrowers, too often already underserved populations, have been left on the sidelines. 

Now that most of Dodd-Frank’s mortgage rules have been implemented, it is time to review these regulations and make the necessary adjustments. 

Let me highlight some of the key issues we feel would allow lenders to reach more credit-worthy borrowers. There is no better place 

to start than with the CFPB’s ability-to-repay rule. MBA appreciates the work of this committee and that of the CFPB to address 

some of the flaws in the qualified mortgage definition. We believe 

that rather than continue to address the rule in a piecemeal fashion, now is the time to examine it holistically, so that all lenders 

can deliver QM loans to consumers, regardless of size of business 

model. 

To achieve this, we urge Congress and the Bureau to: expand the 

legal safe harbor to all QM loans; increase the small-loan threshold 

to fit more smaller-balance loans under the QM umbrella; establish 

alternatives to the QM underwriting criteria to allow lenders to use 

other commonly accepted underwriting standards; broaden the abilVerDate Nov 24 2008 16:34 Mar 15, 2018 Jkt 027368 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 K:\DOCS\27368.TXT TERI
8 

ity for lender-secured defects and technical errors in those loans; 

pass the Mortgage Choice Act, which would exclude title insurance 

fees paid to lender-affiliated companies from the calculation of 

points and fees; and finally, start the process of replacing the socalled QM patch by developing a transparent set of criteria to define QM. 

Beyond these QM changes, there are several other areas that 

should be addressed. First, as a mortgage servicer, I know the cost 

to service loans has increased dramatically. This is due to new 

CFPB rules as well as the punishing treatment of mortgage servicing rights under the Basel III framework. Under that rule, banks 

are required to hold extraordinary amounts of capital to support 

the MSA asset, making it less likely that banks like mine will retain mortgage servicing. 

Amid the backdrop of complicated and conflicting servicing rules, 

these increased costs directly impact consumer access to credit and 

make new-loan production less attractive to lenders. 

Second, the CFPB should be required to provide authoritative 

written guidance to accompany its rules. The CFPB’s resistance to 

providing timely written guidance has resulted in confusion, increased costs, and credit overlays by uncertain investors. This is 

particularly notable in the implementation of the know before-youowe rule. 

Third, regulatory burdens on independent mortgage bankers 

need to be addressed. For example, State-licensed lenders face frequent and duplicative examinations from the CFPB in each State 

in which they operate. MBA urges rationalizing this process by requiring the CFPB to adopt formal, risk-based standards for examinations and to better coordinate with the States. 

MBA also supports establishing an appeals process for CFPB 

exams that applies to both banks and nonbanks and adoption of 

transitional licensing under the SAFE Act. 

Fourth, the Justice Department’s enforcement action under the 

False Claims Act continues to have a chilling effect on lender participation in the FHA program. The resulting legal liability for 

what are oftentimes immaterial defects has forced lenders to impose new credit overlays or limit their involvement in FHA altogether. 

So long as the Justice Department continues to impose these draconian penalties on lenders for foot faults, the remaining FHA 

lenders will continue using overly cautious, defensive underwriting 

that limits options for borrowers. 

In conclusion, the current regulatory environment has increased 

costs and forced many responsible lenders to limit their lending. 

This harms consumers, most often low- to moderate-income borrowers, minorities, and first-time home buyers. We urge this subcommittee to do a thorough review of these rules and regulations 

and make adjustments where necessary. Done properly, we can 

balance the need for appropriate consumer protections while ensuring access to safe, sustainable mortgage credit. 

Thank you. 

[The prepared statement of Mr. Motley can be found on page 73 

of the appendix.] 

9 

Chairman LUETKEMEYER. Mr. Calhoun, we now recognize you for 

5 minutes. 

STATEMENT OF MICHAEL D. CALHOUN, PRESIDENT, CENTER 

FOR RESPONSIBLE LENDING 

Mr. CALHOUN. Thank you, Mr. Chairman, Ranking Member 

Clay, and members of the subcommittee for the opportunity to testify today on this important topic. 

The state of our banks is critical to our country’s economic wellbeing. In my testimony today, I want to underscore three points, 

but focusing most on how best we can move our economy forward. 

First, as noted, data show that banks and especially our community banks are helping to spearhead our Nation’s economic recovery. 

My second point is that there are broadly supported steps that 

can be taken immediately to improve bank regulation and lending. 

And these should be implemented. 

And finally, we must reject those proposals that would thwart 

the advancement of our economy. 

My testimony reflects my experience as president of the Center 

for Responsible Lending, but also as former general counsel of our 

lending affiliate, the Self-Help Credit Union. It was established in 

1982 to expand access to credit, and in subsequent years has provided over $7 billion of financing for first-time home buyers, smallbusiness loans, and other consumer loans. Today, we serve more 

than 100,000 account holders with a full range of financial services. 

In the early 2000s, the Center for Responsible Lending was established in response to the growing predatory subprime home 

loans and it works to promote sustainable lending. 

On the first point, as noted, after a long and painful recession, 

our financial institutions and the economy are recovering. And 

bank and credit union profitability is at near-record level and lending volumes, including commercial and industrial lending, are increasing. Community banks are doing particularly well, as are 

smaller lenders in general. 

This is a healthy sign. And as anyone in the banking industry 

knows, bank profits are still a very small part of the costs of financial services, usually 2 percent or less. Today’s market is a welcome 

relief from the Great Recession when banks, especially community 

banks, were hit so hard. 

The climb back has been hard. And while some contend that new 

regulations have depressed that return, numerous studies and data 

from government and private researchers show otherwise. And 

those are set out and discussed in my testimony. 

I would note, for example, the Urban Institute, cited often, found 

that the QM rule was not restricting credit access. 

Looking first at the areas where we can move forward with the 

ability-to-repay mortgage rule, that has been a common-sense requirement that has produced a better market, but there are ways 

that it can be improved. It includes importantly a two-tier approach. There are a number of important provisions where there is 

additional flexibility for smaller lenders. And in fact, the data as 

set out in our testimony show that mortgage growth since DoddVerDate Nov 24 2008 16:34 Mar 15, 2018 Jkt 027368 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 K:\DOCS\27368.TXT TERI
10 

Frank, mortgage originations, have grown the fastest for smaller 

lenders as opposed to largest lenders. 

As noted by my friend here, the housing area that maybe can be 

improved most quickly is FHA. The continuing uncertainty of the 

False Claims Act, as mentioned, is discouraging lending to firsttime home buyers, which are a key lagging part of the overall housing market. 

In addition, FHA servicing requirements are poorly structured, 

harming lenders, consumers, and taxpayers alike. They should be 

reconciled and reformed to match up with other industry standards. 

A broader area for reform and one that is often overlooked is the 

Bank Secrecy Act, and the Anti-Money-Laundering Act. It is essential to prevent terrorists and other criminals from using our financial services system as a vehicle to cause harm. But these Acts 

place a very heavy regulatory burden on banks and, most particularly, on small banks. 

I can tell you, the experience I had at lending programs in our 

bank, it was one of the toughest regulatory burdens. And the ABA, 

in fact, in a survey of compliance officers, found it was the costliest 

regulatory burden. 

There is a pretty easy way, though, to substantially improve 

that, and that is simply to have ownership data collected when 

businesses are formed rather than placing that burden on the 

banks. Many groups, including ICBA, The Clearing House, and others have endorsed this, and bipartisan bills have been introduced 

to implement it. It would be a major advance. 

The one thing we need to do is not step backwards, such as by 

thwarting the work of the CFPB or by creating huge, gaping loopholes in the QM rules, such as having portfolio loans being swept 

in for all lenders. I look forward to discussing that further with you 

during our questions. 

Thank you again. 

[The prepared statement of Mr. Calhoun can be found on page 

40 of the appendix.] 

Chairman LUETKEMEYER. Thank you, Mr. Calhoun. 

And I thank all of our witnesses for their testimony. Good job. 

I will recognize himself now for 5 minutes for questions. 

The name of our hearing today is, ‘‘The State of Bank Lending 

in America.’’ And I guess the first thing we need to establish is, is 

there plenty of money to lend? 

Mr. Heitkamp, you represent the independent community banks. 

Is there plenty of money in the community banks to be able to address the needs of the citizens and the businesses of the communities? 

Mr. HEITKAMP. Our liquidity is strong. We have plenty of liquidity to lend. We are just looking for a place for it. 

Chairman LUETKEMEYER. Mr. Motley, what about you? You are 

mortgage bankers, are you guys all ready to go, to jump into the 

market here, with plenty of money to hand out to folks? 

Mr. MOTLEY. We have plenty of money to lend. The issue that 

we have is making sure that we are threading the needle to comply 

with the regulatory framework that we live with today. 

11 

Chairman LUETKEMEYER. That was my next follow-up; it’s a nice 

segue for me here. Once we have established the fact that we have 

the money, now we have to figure out why it is not getting to the 

people, or is it getting to the people? And if so, how are we helping 

people? Or are we not helping people? That is the reason for the 

hearing today, to find out what kind of lending is going on and 

what kind of lending is not going on. 

So to follow up with you, Mr. Motley, you made a comment that 

Dodd-Frank regulations are hurting lending, and you advocated a 

whole lot of different rules and regulation changes that would help 

implement a lot more lending to continue to allow people to be able 

to participate in the economy, and I guess do it in a safe way. So 

would you like to elaborate on just a little bit of that? 

Mr. MOTLEY. Sure. The QM rule did establish some basic, prudent underwriting criteria, but it is very, very specific and it relates to the Appendix Q underwriting guidelines that are referenced in the Act. 

Appendix Q was lifted from the FHA 4155 handbook, and that 

4155 handbook is not particularly applicable to new types of households, to underserved markets, underserved people who are trying 

to enter the market, who might be trying to use multiple sources 

of income, there could be multiple households or generational 

households put into one household, and trying to fit that type of 

income documentation into the Appendix Q protocol is very difficult 

to do. 

So we believe that Appendix Q needs to be modified, that there 

needs to be an alternative or an expansion to Appendix Q to allow 

lenders to react to today’s marketplace. 

Chairman LUETKEMEYER. Okay, thank you. 

Mr. Heitkamp, I had a banker come to me the other day and he 

told me this story. He said, ‘‘I had a customer of mine who came 

into the bank. He has a half-a-million-dollar home, and he wants 

to sell it and buy another home, but he needs $250,000 to buy this 

other home and didn’t have that extra amount of cash, but he had 

less than 30 days to do the deal. 

‘‘So he had a half-a-million-dollar asset that he really couldn’t 

take advantage of because of the timing of all of the rules and regulations here. And so, he had to cobble together a bunch of other 

assets to get to about $200,000, and the bank then made him a 

loan, but they said they were exposed for the other $50,000 of the 

$250,000 loan to him. 

And so, if regulators would have come walking in that particular day and seen a loan like this that was secured by $200,000 basically with the cash and a $50,000 exposure, what would have happened? And is this a common occurrence in your bank, the situation that the rules and regulators are putting you in? 

Mr. HEITKAMP. Yes, sir. I think we find that all the time. I think 

we have rules that are supposed to help us, but they hurt us from 

taking care of our borrowers. We have instances all the time where 

we have borrowers come into the bank asking for us to make them 

a loan. We want to make the loan, they have plenty of assets, they 

have plenty of— 

Chairman LUETKEMEYER. And these are customers that you 

are— 

12 

Mr. HEITKAMP. These are our customers. I will give you an instance. Last week, we had a lady—we are in a retirement community. Corpus Christi is down in the south of Texas, in the Gulf 

Coast, and people want to retire down in Corpus, are coming from 

the Dallas area or the Houston area and want to retire. They have 

a home still left where they lived. They are moving down, they are 

deciding either they want to rent that home or they want to sell 

it. 

But they want to come down to Corpus. They have found a home 

they wanted to buy, they fell in love with the home. They came to 

the bank and said they would like to buy this home. And through 

the QM qualifications, the debt-to-income level is 43 percent, so 

they couldn’t qualify. 

And our bank made the decision that we are not going to have 

non-QM loans so we weren’t going to take the risk of being sued 

and figuring out how that is going to work out later on. So a good 

borrower, with a good capacity, we felt for them, but we just 

couldn’t take that risk. 

Chairman LUETKEMEYER. Ms. Wade, very quickly, I am about 

out of time here, but you made the comment in your testimony that 

the difference between small banks giving approvals to small businesses and large banks is about a 20, 25 percent difference. Can 

you explain that difference, why the difference is there? If you had 

the identical customers, why are small banks doing a better job or 

being more liberal or more accommodating to small businesses 

versus large banks? 

Ms. WADE. Sure, thank you. From what we have heard from our 

members, small-business owners, generally the local community 

banks have a small-business staff, a person in the bank who knows 

the community, knows the area, and is better able to help them finance their business through lines of credit or traditional bank 

loans compared to larger banks that might not have the local expertise that is needed. 

Chairman LUETKEMEYER. Thank you. 

My time has expired. With that, we will recognize Mr. Meeks 

from New York for 5 minutes. 

Mr. MEEKS. Thank you. Thank you, Mr. Chairman. 

And I want to thank the witnesses. I think all of you made excellent presentations. And I think that I agree with you in that we 

have to make sure that the pendulum didn’t swing all the way the 

other way. At one time we had no-doc loans, et cetera, and anybody 

could get a loan. And now in an effort we have to make sure that 

pendulum did not swing all the way the other way so that folks 

don’t have access to loans and make sure that they have more 

available. 

And I know and I compliment the smaller community banks and 

what you have done. I have said often, my parents probably would 

have never owned a home if it wasn’t for a small bank that took 

a risk on them, that they would be able to buy the home that they 

purchased. 

I know that Mr. Barr has a bill that he is working on. I am not 

on that bill yet, but I am looking forward to continuing to talk to 

him, because with his Portfolio Loan and Mortgage Access Act, I 

think it may be heading in a direction that maybe we can do someVerDate Nov 24 2008 16:34 Mar 15, 2018 Jkt 027368 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 K:\DOCS\27368.TXT TERI
13 

thing in a bipartisan way. And so, I look forward to continuing to 

work with him in that vein because I think this is tremendously 

important that we make sure there is access. 

Let me ask, yesterday I was reading in the American Banker an 

article that touched on how banks of all sizes—actually, I am really 

focused on the community bankers—are investing in small-business loan funds to meet their CRA economic development goals. 

And while the funds allow the participating banks to mitigate risk 

and diversify their small-business lending, the lending seems to be 

increasing access. And as a result, these funds allow small entrepreneurs to obtain the capital to finance their business ideas. 

So, Ms. Wade, would you talk about the impact, if you will, the 

Community Reinvestment Act has had on increasing small businesses’ access to capital? And are there things Congress can do or 

should do to increase CRA business loaning? 

Ms. WADE. Thank you for the question. The members that we 

survey, I don’t know how they are affected by that. But for the 

most part, they aren’t seeing a whole lot of obstacles in gaining access. The problem that we see is that there isn’t a lot of optimism 

or expansion opportunities for them to borrow. 

And so the lack of confidence in the economy growing, even if 

sales are increasing a bit, they aren’t confident about expanding 

their business, reinvesting in their business, given the current 

state of the economy. And that has been one of their main problems in growing. And that is where we see the low borrowing rates 

from our members. 

Mr. MEEKS. And let me ask Mr. Motley, because here is another 

reason. Oftentimes, when people say CRA, they may think just 

urban America. But I think urban America and rural America, in 

certain areas they have the same problems as far as access and 

finding and getting loans. 

So I would ask Mr. Motley, do you think there is a way to 

strengthen CRA to incentivize banks to serve small, rural as well 

as urban areas in these underserved communities? In other words, 

are there incentives that we can provide through CRA to encourage 

more reasonable risk-taking by some banks so that the smaller entrepreneurs can get access to capital? 

Mr. MOTLEY. Are you referring primarily to rural lending? 

Mr. MEEKS. Rural or I think they are similar. CRA reinvests in 

communities that are underserved. So they help rural areas that 

are underserved, but also help urban areas that are underserved, 

so that both have more access to capital. 

Mr. MOTLEY. We satisfy our CRA opportunity primarily through 

low- to moderate-income lending with the FHA program. We do a 

little bit of lending on a commercial basis throughout our marketplace. And those are underwritten to our personal standards there 

in town. 

But one of the things that we have a tremendous challenge with 

in the rural areas and outlying areas is the appraisal process. 

There are very few appraisers available. It is difficult for us to get 

timely appraisals. And so that is a challenge to us being able to 

serve that rural neighborhood, both from a residential standpoint 

and from a commercial standpoint. 

14 

Mr. MEEKS. Let me ask you. I have 29 seconds left, and I just 

wanted to find out, maybe I will ask Mr. Calhoun, CDFIs, I saw 

that they were being zeroed out under the current budget. Could 

you tell me the significance of CDFI funding to small-business communities? And are you alarmed at all by zeroing out CDFIs? 

Mr. CALHOUN. Very quickly, CDFIs have played a leading role in 

providing that small-business lending to particularly underserved 

parts of the market. And historically, the CDFI program has enjoyed strong bipartisan support for that reason. 

Mr. MEEKS. Thank you. 

I am out of time. I yield back. 

Chairman LUETKEMEYER. The gentleman yields back. With that, 

we go to the vice chairman of the subcommittee, Mr. Rothfus from 

Pennsylvania, for 5 minutes. 

Mr. ROTHFUS. Thank you, Mr. Chairman. 

Mr. Heitkamp, I wanted to ask you a couple of questions. Last 

week we had a hearing about the lack of de novo activity that we 

have been seeing, also a striking consolidation that has been going 

on in the community bank sector. 

Now, I am hearing from community banks on a regular basis and 

their customers about the post-crisis lending environment and the 

challenges they face in complying with all of the new regulations. 

Unfortunately, some on the other side of the aisle dismiss these 

complaints, telling us that bank lending is strong and that profits 

are high so there cannot be any real problems. 

But I think that is a superficial view of the state of bank lending 

in our economy today. And what we have is a two-speed economy. 

There is one speed for the largest firms, individuals with the best 

credit and the biggest banks and there is another speed for everybody else. 

As you noted in your testimony, ‘‘A customer with a pristine 

credit score, or a larger, established business can secure a loan. 

But those with less-than-perfect credit, middle- and lower-income 

Americans, and those trying to start small businesses are not finding it so easy to access capital. 

Community bank consolidation and the de novo drought have 

surely contributed to this bifurcation since many of these groups 

would normally turn to community banks for capital. In fact, lending by smaller banks was more than 150 percent higher than largebank lending before Dodd-Frank, but today it is 80 percent below 

large-bank lending.’’ 

Can you describe how regulatory burdens play a role in creating 

this two-speed economy? 

Mr. HEITKAMP. Yes, sir. I think when you look at it and you see 

the difference with the regulatory burden and talking about de 

novo charters, I think that is the reason why we have a lack of de 

novo charters is the regulatory burden. You are looking at why you 

would take that risk and getting involved with the regulatory environment today is you are seeing a lot of people saying there are too 

many regulations and risks to put my money at work to take that 

risk. 

Mr. ROTHFUS. Can you identify or tell us why certain regulations 

disproportionately disadvantage smaller banks? 

15 

Mr. HEITKAMP. Our compliance costs are through the roof. I can 

give you—in my bank, for instance, in the last 5 to 7 years, I have 

a compliance person, I have a checker of the compliance person, I 

have people doing the job day to day. And we are looking at that 

burden every day to make sure that we don’t make a mistake because that mistake will cost us a lot. So the compliance cost is a 

lot of the burden that we have to deal with. 

Mr. ROTHFUS. Now, how has your bank’s lending activity 

changed as a result of Dodd-Frank? 

Mr. HEITKAMP. Our loan-to-deposit ratio is about 70 percent. We keep it about 80 percent. It is down about $10 million in the last 

5 years. We have been struggling to keep it there. We are trying 

to hire new people to get it involved, but overall compliance and 

just the lack of the small- to mid-sized customer not having that 

flexibility where they can come in, sit across the desk, and say I 

can take that risk with you, with that regulatory risk that we need 

to take, we are not willing to do that. So it is forcing some of those 

customers not to have that credit. 

Mr. ROTHFUS. Mr. Motley, if I could ask you a couple of questions. In your testimony, you discussed the tremendous uncertainty 

about how the CFPB will approach various compliance issues. You 

wrote, ‘‘Despite the extensive liability that can arise from the Truth 

in Lending Act (TILA) violations, the CFPB has largely forgone 

providing guidance on TRID, taking the position that such questions will be settled by the courts.’’ 

Can you describe how the CFPB’s regulation by enforcement impacts consumers? 

Mr. MOTLEY. Sure. We can mitigate credit risk, we can mitigate 

rate risk. We have a very difficult time mitigating regulatory risk 

because the rules have not been clearly defined in every case. And 

when we ask for rule clarifications, we get webinars, we get presentations, but at the bottom of every one of those presentations it 

says you cannot rely on this as being authoritative, you must rely 

on written guidance, and yet we don’t get that written guidance 

from the CFPB. So it makes it more difficult for us to lend. 

And when we are faced with the possibility of a loan being kicked 

out of a pool or a challenge in court at foreclosure time, if there 

is a problem with the regulatory issues, with the disclosures, we 

are going to run into a problem with that. So we are more likely 

to take a more conservative approach and lend very much within 

the credit box rather than out to the edge of the credit box. And 

if we had more regulatory clarity from the CFPB in terms of written guidance, I think that all lenders would be more likely to lend 

to the edges of that credit box and live within the rules. 

Mr. ROTHFUS. Thanks, Mr. Chairman. I yield back. 

Chairman LUETKEMEYER. The gentleman’s time has expired. 

I recognize the gentleman from Texas, Mr. Green, for 5 minutes. 

Mr. GREEN. Thank you, Mr. Chairman. 

And I thank the witnesses for appearing as well. 

And, Mr. Chairman, I want to especially thank you for styling 

the hearing today. You styled it, ‘‘The State of Bank Lending in 

America.’’ You didn’t say, ‘‘horrible bank lending.’’ There are so 

many adjectives that you could have used, and you did not. And 

I must tell you, I appreciate it. It gives each side an opportunity 

16 

to make the case and to hear evidence, if you will, hearkening back 

to a prior life. So thank you for your balanced approach to styling 

this hearing. 

I am one who believes that community banks, by a given definition, should be aided in every possible way. We do from time to 

time have difficulty defining community banking. Eighty-nine to 90 

percent of all banks are a billion and under, $1 billion and under. 

We have tried to fashion rules to cover 90 percent of all banks, 

rounding up, but the problem that we have run into is that when 

we try to do this, there is a desire to go through the entire additional 10 percent or to some additional portion of the 10 percent 

that wouldn’t be covered. 

We tried to do this with H.R. 2642, the Community Lender Regulatory Relief and Consumer Protection Act of 2015, lots of relief for 

what I call community banks. My friend from Texas, your bank started in 1967, with $213 million and 114 employees, am I correct? 

Mr. HEITKAMP. Yes, sir. 

Mr. GREEN. A good bank, by the way. I compliment you. That 

was not a commercial, but I compliment you. If we could fashion 

a bill to cover all banks at a billion and under, will your association 

in Texas support that bill to cover banks at a billion and under as 

opposed to up to the $50 billion level? 

Mr. HEITKAMP. I think you have to look at it in a way of what 

a community bank is. A billion and under— 

Mr. GREEN. Yes, this is where we run into the problem. Go right 

ahead. 

Mr. HEITKAMP. Yes. 

Mr. GREEN. This is where we run into the problem. 

Mr. HEITKAMP. You can put a threshold out to the billion and 

under, there are community banks that really serve their community that are— 

Mr. GREEN. If I may reclaim my time, we are talking about a bill 

that would cover 90 percent of all of the banks in the country, most 

of them are a billion and under, but this is exactly where we go 

when we try to fashion the bill for the 90 percent. It becomes a 

question of, how do we get to the $50 billion banks? 

I want to help and I believe that we could do something now as opposed to continuing to put it off until we can get the $50 billion 

banks in. And $50 billion is a number that I am throwing out and 

most of you know why. That is where the trigger is. What trigger, 

you ask? The trigger for living wills. The trigger for a SIFI designation. 

Those are things that we could debate at a later time. If we could 

help the 90 percent of all banks that are under a billion dollars, 

these are the community banks, these are the small banks that you 

talk about. But when we get ready to legislate, we have to go to 

$50 billion. 

So I am with you on the small-bank issue that you raise. But it is just that when we try to do something for you, it goes to $50 billion. At some point, you are going to have to let them go. You will 

have to let them go. We will deal with them. You don’t have to 

carry their water. It is good water. Let them carry it. 

I yield back. 

17 

Chairman LUETKEMEYER. The gentleman yields back. 

The gentleman from Kentucky, Mr. Barr, is recognized for 5 minutes. 

Mr. BARR. Thank you, Mr. Chairman. Thanks for the great hearing. 

And I appreciate the testimony from our witnesses. I am actually 

asking you all to take a look at a slide that my friends on the other 

side of the aisle have been displaying during their questioning. And 

they are citing Federal Reserve statistics and saying that business 

lending has actually increased after Dodd-Frank, citing commercial 

industrial bank loans at a record high. 

I want to kind of dig deep at this, because as the ranking member of the subcommittee pointed out, just the facts. 

This, in my judgment, reading about trends since Dodd-Frank is 

not just the facts. There are other facts, there is context that I 

think we have to put into this. 

About 25 years ago, small banks under a billion dollars in assets, total industry assets were around 30 percent, $1 billion to $10 billion about 35 percent, and those bigger banks over $10 billion 

about 35 percent. Today, it is a dramatically different picture. 

Today, total industry assets for these community banks under a 

billion dollars is less than 12 percent of all total industry assets, 

as I look at the statistics. And we know that since Dodd-Frank, we 

have 1,700 fewer community banks than there were in 2010. 

So what the real picture says is that lending from community 

banks is off, it is much less. And so to the extent there is business 

lending increasing, it is coming from the larger banks and it is benefiting larger borrowers. So emerging growth companies, small 

businesses, entrepreneurs, and sole proprietors, the real engine of 

economic dynamism, the job creators, that is off, that is way down. 

And that is what that slide doesn’t show. 

And here is why that matters to me. I represent a district in 

rural Kentucky. And three-fourths of all lending in rural America 

come from those small community banks. In fact, the community 

banks in my district, some of them are less than a hundred million 

dollars in assets. And that lending is way off. So that is where the 

concern is, small-bank lending in rural America, small-bank lending where you are talking about half of all small-business lending 

comes from these community banks. 

So, Mr. Heitkamp, as the representative of the community banks 

here, can you elaborate, is that analysis correct? And is that an explanation for why this slide that my friends on the other side of 

the aisle—why that slide is totally misleading? 

Mr. HEITKAMP. Yes, I think that is definitely a good conclusion, 

that you are seeing a lot of larger credit unions and larger banks 

happening, $5-, $10-, $15-, $20 million drive up that data that is 

just hard data. And when you break down the data, you look at 

the, like you said, community banks make better than 50 percent 

of all small-business loans and I believe we do that. It is getting 

harder for us to do because of the credit box that we are in with 

the regulatory burdens. We can’t take that additional risk. 

Years ago, 7 years ago, 10 years ago, 7 out of 10 small businesses 

came out of the small bank. You look at some of the Dells or you 

look at some of the big companies, seven of those took the risk, 

18 

some community bank took the risk with those guys. And so that 

is why I think we are having the challenge that we have today 

with the regulatory box that we are in. 

Mr. BARR. We have lost one in five banks in Kentucky since 

Dodd-Frank. That is a problem. One in five credit unions as well. 

And I think that is compromising access to credit for the small 

businesses and for rural America. 

I want to switch over to Ms. Wade and Mr. Motley for a minute, 

especially Mr. Motley on the portfolio lending legislation. 

Mr. Calhoun is concerned in his testimony that portfolio lending 

is dangerous. With all of the exams that occur, and, Mr. Heitkamp, 

you can weigh in here as well, with all of the scrutiny and the supervision that is happening right now, is Mr. Calhoun right that 

there is a risk with portfolio lending? 

Mr. MOTLEY. I think that there is the potential to put loans in 

portfolio that might not be prudent over time. And particularly if 

we are going to define a community bank by size, size varies, asset 

sizes vary. And so if you set a threshold of a billion dollars, let’s 

say, and then you go above or below and now you have different 

regimes of rules that you have to comply with, I think that a better 

approach is to make the QM rule, make a few revisions to the QM 

rule that would be applicable to all players in the marketplace 

rather than putting it in just whether or not it is in the portfolio. 

Mr. BARR. In my remaining time, we see from HMDA data that 

there has been a big drop in lending to manufactured housing 

loans. Based on your knowledge in the marketplace, do you think 

Congress should act to alleviate the harm to borrowers in the manufactured housing space? 

Mr. Heitkamp? 

Mr. HEITKAMP. We are in a coastal community, so we don’t have 

a lot of mobile homes because of wind storms rules. So I can’t really answer that. 

Mr. BARR. Okay. My time has expired. I yield back. 

Chairman LUETKEMEYER. The gentleman’s time has expired. 

The gentleman from Washington, Mr. Heck, is recognized for 5 

minutes. 

Mr. HECK. Thank you, Mr. Chairman, very much. 

I would like to begin just by making an observation about something which Mr. Motley suggested, namely that there can be risk 

involved in portfolio lending. I am painfully reminded of Washington Mutual, which kept their mortgages or a good percentage of 

them in portfolio, and it didn’t stop them from taking on risks that 

they thought they could stay ahead of because those homes would 

be turned at some point and the dance would never end. But of 

course, it did. 

I actually want to ask about mortgages. 

Mr. Motley, let me start with you, if I may. There seems to be 

a new stubborn structural disparity between how many housing 

units we are creating and what the demand is. And in certain communities where never before have we had this structural difference 

between supply and demand, we just can’t seem to get out ahead 

of it. Last I read, I think we are at an annual rate of 1.2 million. 

Demand for that is obviously higher. 

19 

And as though I needed proof, and I don’t, I have very dear 

friends who bought a home in Seattle about 30 years ago. And they 

finally decided to move into a senior-assisted center. They sold 

their home on—and this was a modest, nice but modest 3-bedroom, 

cottage kind of home, bungalow kind of home—the first day they 

listed it for $150,000 more than the asking price. And that is what 

is happening in a lot of areas in the Seattle market. And I am very 

concerned about this and about what it is that we could do moving 

forward. 

I am from the school that says that the reasons we have this 

problem with lending and in fact in providing for housing is almost 

always more three-dimensional and complex than most people want 

to give it credit for. 

But I am interested as, speaking on behalf of mortgage bankers, 

what you might have to observe about this new phenomenon of 

there being structural differences between supply and demand, including in, for example, some Midwestern communities that we had 

not gone through this quite as we are this time. 

So what can you say that might provide insight or help with respect to understanding where we are in the housing market? Fair 

question of you, Mr. Motley? 

Mr. MOTLEY. Okay, let me see if I can answer that or give you 

my opinion on it. There are significant challenges in the first-time 

home buyer market in the low-income area of housing where people 

need to get in, want to get into housing, but because of the cost 

they just can’t do it. And what are some of the issues that are involved in that cost? 

Well, local regulations. Land costs, very, very high. Regulations 

with regard to new construction have been imposed and it makes 

it very, very difficult for builders these days to build a low-to moderate-income house and make money at it. 

Mr. HECK. And make any money at it. 

Mr. MOTLEY. Right, right. And so there is that supply issue. But 

then also from the mortgage side, and this is one of the things that 

I would ask you to consider about the QM rule, the QM rule says 

that you cannot—and I am going to defer to my friend Mike here 

on the exact formulation. There is an APR cap that says that the 

interest rate or the APR cannot be more than 11⁄2 percent over the 

average prime offer rate. That is a very narrow range. And what 

happens when you go over that APOR by 11⁄2, is that it becomes 

a non-QM loan. Non-QM loans are not liquid. They are not fungible 

in the marketplace. They are viewed as toxic. And so one of the 

things that we proposed— 

Mr. HECK. Excuse me, Mr. Motley, that is a very interesting 

point. Thank you. But if I understood you correctly, you are suggesting that in order to be a more liquid market and a more attractive market to lenders that you need to be able to charge more to 

the people who are on the low-income end of— 

Mr. MOTLEY. I am just saying that is the way the calculation 

works out when you have a low-balance loan because there are fees 

like title fees that are fixed fees, not a percentage of the loan 

amount. You have to add those fees into the calculation to get to 

that APOR. And if you go over that threshold, it becomes a nonQM loan. 

20 

Mr. HECK. Mr. Calhoun, would you be supportive of that change 

as well, sir? 

Mr. CALHOUN. We did support that and have for a long time. It 

is in our written testimony. And the effect of giving that 50 basis 

points extra of cushion is equivalent in allowing four extra points 

of closing costs. So it doesn’t look like a lot, but since it is an ongoing 50 basis points, that provides a good bit of additional room 

without creating us one of those places where we can tweak this 

without creating harm. 

I would note, the CFPB has started its review of the whole QM 

rule, as they are required to do on all their significant rules every 

5 years. And this is— 

Mr. HECK. Thank you, both. 

In my 4 seconds left, let me just say thank you, Mr. Chairman, 

for the opportunity to use this hearing to say that we ought to be 

spending a whole lot more time in talking about how to meet housing needs and how to get housing starts up. And it would solve a 

lot of problems in this economy and for the average American. 

And with that, I thank you, sir, and I yield back. 

Chairman LUETKEMEYER. The gentleman’s time has expired. 

They have called votes, but we are going to try and get two more 

Members in before we leave to vote. 

Mr. Williams from Texas is recognized for 5 minutes. 

Mr. WILLIAMS. Thank you, Mr. Chairman. 

I want to thank all the witnesses for being here today and especially my fellow Texans for coming up here to D.C. 

I want to follow through on something Mr. Barr said earlier. 

Ms. Wade, you highlight the important role small business plays 

in economic growth, accounting for about half of the U.S. gross domestic product. Despite this importance, small businesses have 

struggled to secure credit since the passage of Dodd-Frank. I am 

a small-business person and I understand every bit of that. 

According to research by an analyst at the Federal Reserve Bank 

of Dallas using FFIEC data, small-business loans at U.S. commercial banks have declined 15 percent since 2008, even while total 

business loans have increased 33 percent. As a result, small-business loans have shrunk by almost 40 percent of the small-business 

loans portfolio in 2004 to 20 percent in 2016. 

What has been the impact of reduced access to credit on small 

business? And how will increasing access to capital help small business? 

Ms. WADE. Thank you. As I said, one of the problems is that 

there is just a lack of demand, generally speaking, in the smallbusiness community where they don’t have the confidence in seeing 

opportunities to expand, grow their business or risk not knowing 

what business conditions will be 6 months, a year down the road. 

And they are not willing to bet their own money on not a solid economic foundation in many of their communities. 

So, the low borrowing levels is one of our main concerns. We did 

find, however, that there are more difficulties for those who are in 

high-growth small businesses, so those who have had over 50 percent growth in the last 3 years. Those businesses seem to be finding, on average, a more difficult time in accessing credit. And we 

are interested in looking into that further. 

21 

That might be coming up against some of the regulations that 

are restricting community and smaller banks in lending to these 

businesses. And that is where a lot of our concern is focused in 

these more high-growth businesses that are having a more difficult 

time accessing credit. 

But in creating policies that are more business-friendly, those are 

the areas that we are focused on in allowing small businesses to 

grow and improve their business in reinvesting so that there is a 

strength in borrowing among the small-business community. 

Mr. WILLIAMS. All right, thank you. 

Mr. Heitkamp, in your testimony, you spoke about bank consolidation. Like many of the small businesses in my district, which you 

are familiar with, I, too, am a borrower. Can you tell me what 

these consolidations, these mergers mean to borrowers and communities locally? 

Mr. HEITKAMP. Yes, sir. I think the mergers and acquisitions is 

really hurting the people trying to get credit. You see borrowers out 

there and today when you lose a merger out of a community bank 

or it leaves that town, that town doesn’t have the access to capital. 

So a merger is a big issue and the access to capital and those people in those communities are not getting it. And so they are looking 

for other places to go online and other places, so it is not really 

driving what we need, real economic growth. 

Mr. WILLIAMS. Mr. Motley, what has happened to your banking 

services since passage of Dodd-Frank? And have you had to reduce 

some books of business? 

Mr. MOTLEY. Have we had to reduce what? 

Mr. WILLIAMS. Have you had to reduce some accounts, some 

books of business? 

Mr. MOTLEY. What has happened in our business since DoddFrank is that we have increased our staff of compliance personnel 

dramatically by a factor of probably 10. We spend these days, 

whereas perhaps prior to the crisis we might have spent $10,000 

to $15,000 a month towards compliance issues, we now spend 

$350,000 a month in compliance, refunding QC, quality control, 

areas. So it has dramatically increased our cost of business. 

In terms of have we had to turn business away, we never were 

a lender of those no-income, no-asset type loans to any significant 

extent. So when those products went away, it didn’t affect us, we 

didn’t really do those loans. 

Mr. WILLIAMS. And all that money that you had spent on compliance could have gone to customers to build a business, to hire people, put people to work, create more taxpayers. 

Mr. MOTLEY. It could have reduced the cost to consumers, because when banks incur increased compliance costs or costs generally, those costs are going to get passed on to the consumer one 

way or the other. So the cost of origination, if I could just take another second, has grown from $1,900 in 2004 for us to over $6,500 

in 2016. The cost to originate a loan is dramatically higher than 

it used to be prior to the recession. 

Mr. WILLIAMS. Thank you for your testimony. And I yield back. 

Chairman LUETKEMEYER. The gentleman yields back. 

We are going to try and get one more Member in here before we 

recess. 

22 

Mr. Loudermilk from Georgia is recognized for 5 minutes. 

Mr. LOUDERMILK. Thank you, Mr. Chairman. And I will try to be 

very brief with this. 

Mr. Heitkamp, last year at the end of the year, statistics showed 

that banks with over $100 million in assets saw a growth in loans, 

but smaller banks saw a decrease. From a State that has lost a lot 

of community banks, we have some counties in our State that have 

no bank branch at all of a smaller community bank. There has 

been a significant impact on Georgia. And with this, it makes me 

just wonder, why are we seeing this trend of larger banks are seeing an increase? And what are the challenges of our smaller banks, 

our community banks? 

Mr. HEITKAMP. Yes, I think you are seeing the consolidation that 

is making the decision if you are a small community, and I think 

$100 million is even pretty small today. They are saying you need 

to be half-a-billion dollars to survive the new economic data or the 

regulatory burden that you need to survive the increase costs. 

Mr. LOUDERMILK. So it goes back to the regulatory burden that 

we are putting on these guys? 

Mr. HEITKAMP. Yes, you are looking at our costs have gone up 

300 percent in the last 3 years on regulatory costs. 

Mr. LOUDERMILK. And what I am getting from our community 

bankers is, when I am asking about, under the CHOICE Act and 

Dodd-Frank, what is it that we need to correct? The answer I am 

getting is death by a thousand cuts. It is not just one thing, it is 

a death by a thousand cuts. Could you elaborate a little bit more? 

Mr. HEITKAMP. I think all these things you are talking about, 

death by a thousand cuts, every time you turn around you are getting 1,200 pages of regulation or other, you look at HMDA, you 

look at increased data points there, you are looking at the CFPB, 

you are looking at TRID, all the new things that Washington is 

putting out to us. We can’t take care of the customer and take care 

of those costs, so you give to the customer because you have to take 

care of the other things because of regulations. 

Mr. LOUDERMILK. Okay, thank you. 

Mr. Motley, one of the things that I have also heard coming from 

the banks is, tell us what the rules are, just give us what the rules 

are. I remember when I was in the Air Force, we played a game 

of softball. But what we weren’t told is what the rules are and the 

rules continually changed, so it was impossible for you to win because every time you went to bat you may be given one pitch, you 

may be given four pitches. 

And I equate what they are saying, especially in the mortgage 

industry, to we don’t know what the rules are that we need to play 

by because they are evolving. Does that kind of hit where some of 

the problems are? 

Mr. MOTLEY. Yes, sir, it is. And it goes back to my earlier statement. When you don’t know what the rules are, you are going to 

try to take the safest route and you are going to stay away from 

the edges of the credit box. Because the penalties for making a mistake under the know before you owe rule or really any of the QM 

rules, the ability to repay rules, all of those rules carry truth in 

lending liability. And that is significant. 

23 

And so when we are not clear on what the rules are, we are 

going to pull back. We can quantify credit risk, we can quantify 

rate risk, we cannot quantify regulatory risk. And that is why we 

need to ask for and I think we should expect to get clear, written, 

reliable guidance from the CFPB. We get that from the prudential 

regulators, we should be able to get it from the CFPB. 

Mr. CALHOUN. And, Congressman, if I may add just for the 

record that last year on the so-called TRID or know-before-you-owe, 

the CFPB did issue a notice that they would engage in formal guidance. They solicited comments, which I know MBA submitted, we 

did, too, and you should expect in the forthcoming months, if not 

weeks, that there will be further official TRID guidance to help 

provide that clarity, because we agree that unnecessary uncertainty has a high cost. 

Mr. LOUDERMILK. Mr. Motley, how long have we been asking for 

this directive? 

Mr. MOTLEY. Since the rule came out. 

Mr. LOUDERMILK. Okay. So it has been quite a while, very slow 

going. 

I asked one of my lenders or one of our small banks back just 

a few weeks ago, could you give me some incidences of where you 

haven’t been able to loan money? And they said, we could give you 

many instances. For instance, there was a guy that we had loaned 

for a mortgage many times and he paid, has always been current, 

and he came and asked for a loan for a new home and we had to 

deny him, but we really couldn’t tell him why. 

And I believe it was because exactly what you were saying, is 

they are taking the safe route because they don’t know what the 

rules are. And even though these directions may come out, will 

they change again? 

So with that, Mr. Chairman, I yield back. 

Chairman LUETKEMEYER. The gentleman yields back. 

With that, we are going to stand in recess until after votes. I 

think there are about 4 votes, so we should be back within, oh, 35 

to 40 minutes, so sometime between 3:50 and 4:00. So if you will 

bear with us, we should return. 

We stand in recess. 

[recess] 

Chairman LUETKEMEYER. Let us go back to work. Again, thank 

you for your indulgence. I apologize for the interruption, but we actually had to go to work a while ago. So thank you so much again 

for your patience. 

The gentleman from Tennessee, Mr. Kustoff, is recognized for 5 

minutes. 

Mr. KUSTOFF. Thank you, Mr. Chairman. 

I am a recovering attorney and a former U.S. attorney, but also 

a former bank board member for a community bank, so I appreciate the comments and the testimony that many of you have offered. 

Mr. Heitkamp, if I can, going back to you, since the implementation of Dodd-Frank, in my opinion, we have seen a one-size-fits-all 

regulatory regime, regardless of a bank’s size, that has had a profound impact on a bank’s ability to lend. 

24 

Where I am from in west Tennessee, I hear of many instances 

where long-time customers of their banks or financial institutions 

are unable to secure a personal or business loan due to the stringent requirements of Dodd-Frank. Problems like these as we have 

heard today are happening all too often and consumers are finding 

it more difficult to access credit when they need it the most. 

If you could, in your experience, pre-Dodd-Frank and now postDodd-Frank, can you talk about the type of individuals that, just 

subjectively or anecdotally, you could loan to before the implementation of Dodd-Frank and compare that to today? 

Mr. HEITKAMP. I will give it a shot, sure. I think looking back, 

I think I just did this in a talk the other day, talking about what 

I did 10 years ago. Ten years ago, I took care of my customers, 

grew my business, and tried to grow my bank. 

Today, most of my time is spent trying to deal with new regulations or old regulations and how it is going to affect my bank. So 

I think that kind of sums up what you are talking about. But from 

a customer standpoint, we talked about DTI, we talked about the 

loan requirements that you have to do, the hurdles you have to get 

over, for good customers, that you are looking for those additional 

regulatory requirements that have been put on us because of DoddFrank. 

And I think that is our challenge is trying to help those customers that you want to help and trying to figure out now how to 

do it. And sometimes you just can’t. 

Mr. KUSTOFF. In my area of the world, and I talked to some of 

the bankers around west Tennessee, in rural west Tennessee. I 

talked to a banker in rural west Tennessee, and I have this in 

quotes because we took it down verbatim, he told us that a customer of his tried to refinance his primary residential loan. These 

are his words, ‘‘When we requested verification of the income, the 

customer could not provide it because they had lost their job in the 

past year. However, for the past 12 months the customer had made 

regular, timely payments on the loan. He managed to engage in 

what he called odd jobs and make the payments, but because of the 

requirements of the ability to repay, our bank was unable to refinance the loan for this specific customer.’’ 

And if I could, Mr. Motley, maybe going to you, I believe you had 

testified that in fact mortgage credit has tightened, and the impact 

that it is had on customers, your customers, particularly low- to 

moderate-income borrowers, minorities, and first-time home-buyers. Can you elaborate, if you could, on the various factors that 

have led to the constriction of credit in general? 

Mr. MOTLEY. Was that directed to me? I’m sorry, I couldn’t hear 

you. 

Mr. KUSTOFF. Yes, sir. 

Mr. MOTLEY. Okay. Particularly in multicultural communities, it 

is common for families to pool their funds. That is not a standard 

way of documenting your ability to repay using the Appendix Q. 

Were it not for the patch, the GSE patch, the temporary patch, we 

would be very challenged to make the kinds of loans and the number of loans that we have made because the debt-to-income ratio 

that we have documented based on the information that we have 

would be well-above 43 percent. And yet we would see people who 

25 

have perhaps made that housing payment before, the housing payment that they are proposing to have is equal to or maybe even 

less than, but it might still be over that 43 percent level. 

It is going to be more difficult when that patch goes away in 

2021 if we don’t make some modifications to what the definition of 

a QM is. And so we propose some minor modifications, some 

tweaks that allow lenders to use alternative underwriting decisions 

and use some other alternative underwriting methods to demonstrate the ability to repay without the very prescriptive rules 

that are in Appendix Q and specifically the 43 percent debt ratio. 

So there are a number of different prototypes, if you will, or borrower types that I could go into, people who are recently out of college, for instance, who are trying to get into their first home, but 

they don’t have a history of earnings, that type of thing is problematic under QM. 

Mr. KUSTOFF. Thank you very much. 

And I believe my time has expired. Thank you, Mr. Chairman. 

Chairman LUETKEMEYER. The gentleman’s time has expired. 

With that, we recognize the ranking member of the subcommittee, the distinguished gentleman from the ‘‘Show Me’’ State, 

Mr. Clay, for 5 minutes. 

Mr. CLAY. Thank you, Mr. Chairman. 

Let me start with a question for both Mr. Heitkamp and Mr. Calhoun. 

Some suggest the declining rate of community financial institutions in this country is a recent phenomenon and one that started 

with the enactment of Dodd-Frank. And yet, the facts once again 

do not support this. 

In the decades leading up to 1980, the total number of commercial banks fluctuated around 13,000 to 14,000. Since that time, 

there has been a steady decline at a rate of about 300 per year to 

just under 6,000. 

More than 80 percent of banks that exited the market over the 

past 30 years did not fail, but rather merged or consolidated with 

another bank utilizing interstate branching laws that were passed 

long before Dodd-Frank. 

And, Mr. Heitkamp, aren’t smaller banks being gobbled up by 

larger banks as a result of the institution’s prosperity and success? 

Is that how you see this? 

Mr. HEITKAMP. No, sir, I don’t. I see it as kind of the opposite. 

I think when you start looking at mergers and consolidations, I 

think the banks that are looking for that are primarily because of 

regulatory burden that they are putting on. They cannot survive 

and their costs are going up, so it is driving them to make a decision for viability and for their shareholders to sell their bank. And 

so you are seeing mergers driven, in my opinion, based upon that 

decision. 

We struggle with it ourselves. We are a $213 million bank. Does 

it make sense for our shareholders to keep absorbing and seeing 

our income go down? 

Mr. CLAY. Thank you for that response. 

Mr. Calhoun, how do you see it? 

Mr. CALHOUN. Well, a couple of points here. The biggest impact 

on community banks has been the fallout of the Great Recession. 

26 

We saw almost 500 community banks shuttered. They were the primary banks that got closed for financial difficulties as a result of 

the Great Recession. 

And then I think you have heard from many witnesses here, the 

two biggest challenges in small-business lending are, first, reduced 

demand because those businesses are still recovering from the 

Great Recession, and one that hasn’t been mentioned yet, and that 

is extremely and artificially low interest rates make it extremely 

difficult for us as small lenders to take deposits and lend and make 

a living off the difference when interest rates have been depressed 

so low. 

That said, let me be clear, as I said in our written testimony, we 

both support a two-tier approach to the regulation and an expansion of the existing measures that have been taken in that regard. 

And there are ways that can be done carefully. 

I think the points that Mr. Green was making, don’t throw the 

baby out with the bathwater because, again, the biggest stress was 

that the housing boom took away so much of our business from the 

unsustainable lender that the witnesses up here were not willing 

to engage in. And the reckless lenders took our business away and 

then crashed the economy, and we took the hit for that and we are 

still feeling that pain. 

And so sustainable, robust growth is what our goal is here. And 

with some small changes in these places, you can make a measurable impact there. 

Mr. CLAY. Thank you for that response. 

Mr. Motley, you brought up some interesting scenarios in your 

testimony about what could help the mortgage industry and our 

housing industry, in effect. One would be the repay rule that the 

CFPB has, the qualified mortgage. The Democrats have proposed 

to exempt community banks from qualified mortgage rules provided that their mortgages are held in portfolio. Would you comment on that? 

Mr. MOTLEY. I think that, first of all, we appreciate the idea or 

the concept that there might be some attempts to stimulate lending. Portfolio lending is an important factor for banks as investments. But I caution the use of portfolios to add loans that are not 

standard. The QM rule could be adapted for all lenders so that the 

consumer knows what to expect when they go to a bank, whether 

it is a small bank, a community bank or a large bank. The rules 

of the qualified mortgage, I believe, should be the same for everybody. 

Mr. CLAY. Thank you so much. 

My time is up. 

Chairman LUETKEMEYER. The gentleman’s time has expired. 

With that, we go to the gentleman from Florida, Mr. Posey, for 

5 minutes. 

Mr. POSEY. Thank you, Mr. Chairman. 

Mr. Motley, you mentioned in your written testimony that in recent years the Department of Justice has aggressively pursued enforcement actions under the False Claims Act against lenders participating in the FHA insurance programs. I certainly believe that 

if you defraud the Federal Government, you ought to be held acVerDate Nov 24 2008 16:34 Mar 15, 2018 Jkt 027368 PO 00000 Frm 00032 Fmt 6633 Sfmt 6633 K:\DOCS\27368.TXT TERI
27 

countable. And in regard to the FHA, we all want to ensure that 

FHA is protected from risky loans and is on solid financial footing. 

But it is my understanding that the Department of Justice has 

now sued and settled with nearly 30 companies for violations of the 

False Claims Act. All of these companies were accused of misrepresenting the quality of the loans to the FHA. Those are pretty serious charges. 

If the Department of Justice is finding issues this widespread 

with so many of the program’s participants, and I am assuming 

that these were not intentional acts of crime, shouldn’t HUD step 

in and try to address the problem? In other words, instead of shooting for settlements, it seems like it would make more sense to ensure everyone knows how to comply with the regulations so we can 

actually prevent real harm from happening in the future. 

I think if there were intentional criminal acts, those people ought 

to go to jail and we ought not be making settlements. That is how 

you really change behavior for the future, but I’m assuming that 

is not the case. 

Mr. MOTLEY. I think the False Claims Act has been utilized as 

a sledgehammer to kill a fly in a lot of, in many cases because 

many of our members have been subjected to false claims acts or 

errors in calculation of income, perhaps a minor omission, non-intentional omission of a deposit or some credit issue that we were 

aware of when the loan was made, and yet when that loan, if it 

goes into default, it does go into default, and then suddenly the 

lender is being faced with the False Claim Act, and so now not only 

do you have the loss of the loan and you have to indemnify HUD, 

but you also have treble damages. So the penalty doesn’t fit the 

crime in a lot of these cases. 

Now, we are not advocating, and let me be very clear, if a lender 

is guilty of fraud or a conspiracy to violate the rules on a regular 

basis, then that is an appropriate use of the False Claims Act. But 

for one-offs, for errors in processing, for mistakes that are going to 

happen, the rules are very, very prescriptive, you start thinking 

about the loss mitigation protocols that FHA requires, which are 

not standard, like Mr. Calhoun was talking about earlier, they are 

different than the agency’s protocols for loss mitigation, we need to 

standardize those loss mitigation protocols. 

But if we make a mistake in an FHA loss mitigation process, we 

haven’t experienced it, we have other members who have experienced it, that becomes a false claim when the loan goes into default 

and they file a claim. And so that sort of mismatch between the 

crime, the so-called crime, and the punishment needs to be rightsized. And the False Claims Act, we believe, should be used in a 

very limited, specific when they are egregious activity. 

Mr. POSEY. Yes, I was going to ask you what steps HUD can 

take, and I think you have already said it. Just probably be much 

clearer and delineate exactly what is and what is not in bounds or 

out of bounds on the False Claims Act. 

Absent HUD providing clarity, how will the DOJ’s aggressive enforcement actions affect the lender participation and, more broadly, 

access to FHA credit? Have you seen a negative impact? 

Mr. MOTLEY. We certainly have seen an impact. A number of 

lenders, one that I am sure you have heard of, Jamie Dimon, has 

28 

been very vocal in his concerns about participation in the FHA program. He has said, ‘‘We can’t be in the FHA program, the risks are 

too great. And the reason for that is that there is not a good protocol; what we need is a taxonomy of rules and procedures in the 

FHA guide that will allow lenders to have clarity and certainty in 

the way that they participate in FHA lending.’’ 

Mr. POSEY. Yes. Do you know offhand, when they make these 

stipulated settlements, do you know where the money goes? Do you 

have any idea? 

Mr. MOTLEY. I’m sorry? 

Mr. POSEY. I am curious if you know where the money goes in 

these stipulated settlements when they make them. 

Mr. MOTLEY. I don’t know specifically. I think it goes into the coffers of the Federal Government. 

Mr. POSEY. Yes, I am wondering if they are making bounty hunters out of DOJ. I just have to wonder about that. 

Thank you, Mr. Chairman. I see my time is up. 

Chairman LUETKEMEYER. The gentleman’s time has expired. 

I now recognize Ms. Moore for 5 minutes. 

Ms. MOORE. Thank you. 

I just wanted to ask the panel—I know that smaller banks were 

not the cause of our financial meltdown, and excuse me if I ask 

questions that have already been answered, but we have seen 

banks become more profitable, including smaller banks. 

And so I guess I would want to hear from you all what your 

thought is about analyses that suggest that part of the problem for 

smaller banks has been an effort to try to develop growth at a very 

fast pace. And a lot of the losses were due to aggressive commercial 

lending because in Dodd-Frank, of course, we exempted these 

banks from the CFPB, exempted and gave them sort of a tiered 

structure with regard to regulation. 

So I was wondering if you could just share with us what lessons 

perhaps the smaller banks have learned with regard to rebounding 

from the crisis, because I am not sure all of it is because of DoddFrank. 

Mr. HEITKAMP. I will take a stab at that. I am not sure rebounding is the right word, though, because I think earnings are a thing 

that you can look at and say, okay, does that balance everything 

but not really, you have regulatory issues that we have been dealt 

with since Dodd-Frank, too, that is adding in there. 

So when you start taking and looking at earnings as a whole, are 

you looking at larger-bank earnings? Are you looking at community 

bank earnings? I know they have gone up. But in my case, my 

earnings have not gone up. I am dealing with a lot more regulation 

because there is a lot more expense I am having to deal with today 

than I did before Dodd-Frank. 

Ms. MOORE. But you would also stipulate, you would also recognize that a lot of the regulation for larger banks, smaller banks 

have been excluded from it, and credit unions. 

Mr. HEITKAMP. You are saying, ‘‘excluded.’’ I am not sure we 

have been excluded. Maybe there has been a box that we fit in, 

maybe we get 50 basis points difference or something for exclusion. 

But really as a whole, we are still subject to HMDA, all the different things that we are having to do in a greater degree. 

29 

Ms. MOORE. So the tiering, you don’t see that what we have done 

is adequate enough? Is it the wrong approach totally? 

Mr. HEITKAMP. I don’t think it is the wrong approach. I just 

think it is not enough for small community banks and what we are 

trying to do. I think that we need to push back and say, hey, we 

need some real regulatory relief that will help us, that doesn’t add 

onto what we are currently doing. All we did is get 1,200 new 

pages of regulation in each of the different regulations that came 

out of Dodd-Frank. 

Ms. MOORE. I guess what I would like to hear from the panel is 

whether or not you think that Dodd-Frank had a useful purpose. 

And obviously, none of you are Wells Fargo or some of the other 

actors that we have had to fine and there was a tremendous 

amount of mischief leading up to the financial crisis. 

And so we have not wanted to penalize those actors that were 

not a part of it, but I guess I am concerned about whether or not 

you all think that there is something in between just sort of jettisoning Dodd-Frank, if there is some concrete improvements that we 

can make and not just say we don’t need a regulatory framework. 

Mr. MOTLEY. If I may, the MBA is not proposing that we jettison 

Dodd-Frank at all. There are a few things that we would like to 

see happen to make the QM rule a little bit more inclusive for all 

borrowers, low- to moderate-income borrowers who are stifled in 

many cases because of the treatment of points and fees and the 

limited cap on that. So we would like to see an expansion of that. 

We would like to see some relaxation or some differences in how 

we interpret the debt-to-income ratio. So we are— 

Ms. MOORE. So do you think this has an impact on minority borrowers, who have suffered a lot? 

Mr. MOTLEY. It has a definite impact on minority borrowers because of the—and I mentioned earlier before you were here. What 

we find in multicultural families is that families will go together, 

they will pool their resources in order to afford a house. That is 

often very difficult to document and, in many cases, it could be over 

that 43 percent debt-to-income ratio. 

If for some reason that loan is not eligible for Fannie Mae, then 

we can’t go over 43, it will be an illegal loan. So unless we wanted 

to keep it in portfolio, I suppose you could do that, but then you 

have the risk of a loan that is not nearly as liquid. It is frowned 

upon by the regulators. So tweaks to the QM definition would be 

the thing most helpful, I think, in expanding the credit box. 

Ms. MOORE. Thank you so much. 

My time has expired. And thank you for your indulgence, Mr. 

Chairman. 

Chairman LUETKEMEYER. The gentlelady’s time has expired. 

Mr. Heitkamp is going to leave here in a second. Before he 

leaves, there is one question that hasn’t been asked yet. Ms. Moore 

went to part of it, and I want to sort of jump in here quickly and 

get a clarification before you do leave, Mr. Heitkamp, and that is 

with regards to the subject of profitability of the community banks. 

I think from the standpoint that you have seen some earnings go 

up, I think the point that you made a while ago, and we need to 

clarify it just a little bit further, is the fact that small banks, say 

30 

$250 million and under, are the ones that are really, really feeling 

the pinch of the regulatory costs. 

The FDIC did a study a few years ago which showed that they 

didn’t anticipate banks under $250 million even being around in 5 

years. And so for clarification purposes, would you agree with that 

statement or like to expound on it? 

Mr. HEITKAMP. Definitely, I think that is really important to talk 

about today. 

Chairman LUETKEMEYER. So you are looking at banks with 750 

to a billion, they are doing okay, but the littler guys are the ones 

that we are talking about. 

Mr. HEITKAMP. I would even say $500 million and below, they 

are really suffering. I think I heard a study that was, like, $350 

million, you had to be that size to survive today. 

Chairman LUETKEMEYER. Okay, very good. Thank you. 

I thank the subcommittee for their indulgence. 

Mr. Heitkamp will be leaving here shortly. 

But we are going to go to Mr. Tipton next. The gentleman from 

Colorado is recognized for 5 minutes. 

Mr. TIPTON. Thank you, Mr. Chairman, that is a great segue actually to the questions that I had. 

I come from a small community. And, Mr. Heitkamp, it certainly 

captures my attention having participated in a small community 

bank, when you are talking about a 300 percent increase in terms 

of some of your regulatory costs. 

I had one of our small community banks contact me several 

months ago and said good news on the employment end, we have 

made three new hires, the bad news is they are all for compliance. 

And those are the real challenges really when you say that our 

small community banks are really facing. 

There was a recent Bloomberg News data which showed that 

loans of a million dollars or less to Main Street-style businesses 

has fallen to 20 percent of total business credit from 35 percent in 

2004. Consumer loans as well? 

Mr. HEITKAMP. Yes. 

Mr. TIPTON. And have you seen an impact on small-business formation? That is one thing I think that we forget in the mix. Since 

we have been keeping records for the first time, we are seeing more 

small businesses shut down than there are new business startups. 

And as our chairman is often noted as saying, it is hard to have 

capitalism without capital. You are the liquidity in the marketplace. 

Are you seeing that with your small businesses in Texas? 

Mr. HEITKAMP. Yes, we are definitely not seeing as many applicants as we have had in the past. I think the people are sitting on 

the sidelines, seeing what the regulatory issues are and how they 

are going to impact them before they invest those capital dollars. 

And so I think that is a deterrent to seeing small business grow. 

Mr. TIPTON. When you are seeing some of the difficulties of being 

able to make a loan that perhaps you would like to be able to 

make, but regulatorily you are not allowed to make, do you see 

them turning to alternative financing? And what might that look 

like? 

31 

Mr. HEITKAMP. Yes. I think if they can’t get the loan from a commercial bank, they are looking for it in other places. Sometimes 

they are going online, you see these online lenders, things like that, 

but it is really not a good alternative for them because at the end 

of the day it is going to come back to haunt them. 

Mr. TIPTON. Higher costs? 

Mr. HEITKAMP. Higher costs. 

Mr. TIPTON. Higher costs and perhaps more business failure 

there. 

In your testimony you advocated for regulatory reform that 

would require the Federal financial regulators to conduct a cost/ 

benefit analysis as part of the rulemaking process. How would this 

improve the final rules, in your opinion? 

Mr. HEITKAMP. I think knowing, if you are doing the cost/benefit 

analysis, to say, okay, does this make sense before you apply a rule 

or regulation and making sure we talk about it, I think that makes 

a lot of sense for us to say how the effect will happen to that or 

what effect will become of that. 

Mr. TIPTON. You are probably trying to get out and that is why 

we are all going to pick on you here in the short term. 

[laughter] 

Mr. HEITKAMP. That is okay. 

Mr. TIPTON. But we recently had Chair Yellen and a variety of 

regulators testify, and they have always noted the trickle-down effect of regulations, but then they will cite that they are doing everything they can to be able to relieve that regulatory burden that 

people are facing. 

I talked to a couple of community bankers just a few days ago 

when they were in town and they were talking about the best practices ultimately trickling down. Are you seeing that real impact on 

you and impacting your ability to maintain that small community 

bank? 

Mr. HEITKAMP. Yes, we are. The best practices are—I am worried 

about the new ones that is going to come down the road is looking 

at our small-business customers and the compliance they are wanting to put on small business and gathering data. And everything 

that you are hearing about that is starting to gear up. We have 

had regulators start telling us, hey, gear up for this. That is going 

to be additional costs and additional burden that we are going to 

have to do if we have to get into small-business lending like that. 

Mr. TIPTON. Just one final question from me so that you can 

leave, if you must. What I think is really important for us to be 

able to understand is that community bank. When you are talking 

about the mergers, the acquisitions, it is always with the idea of 

being able to get the benefit of synergy of a larger entity. But what 

does a community bank, somebody that you are describing, somebody who lives and works there and understands the people that 

they are trying to be able to make loans to, what is important 

about that? 

Mr. HEITKAMP. Oh, I think that is the key driver of a community, 

knowing the people that you deal with, you have the certainty of 

we have built that relationship over years, you can trust one another, that is hard to get and that is very valuable. And that is my 

32 

opinion of community banking. That is why it is so important that 

we keep these guys. 

Mr. TIPTON. Yes. Thank you, Mr. Heitkamp. I appreciate it. 

Mr. Motley, I would like to be able to ask just one question of 

you. You mentioned in your testimony the tightening of mortgage 

credit availability and the increase in origination and servicing 

costs. 

We have a bank in Westminster, Colorado, that told me their 

branch had to shut down the majority of their mortgage group, 

from 15 to 4 people, because the business model simply no longer 

made sense. According to them, they lost jobs because of the regulatory burden. It was too much. 

In your opinion, does the current regulatory framework for mortgage lenders balance safety with access to credit for customers? 

Mr. MOTLEY. I think it can be improved upon. I think by making 

some tweaks in the QM rule, I think by providing clarity, written 

guidance from the CFPB, we can do a better job of expanding the 

credit box and allowing more people to qualify for mortgages. 

Mr. TIPTON. Thank you. 

My time has expired. Thank you, Mr. Chairman. 

Chairman LUETKEMEYER. The gentleman’s time has expired. 

With that, we go to the gentlelady from New York, Ms. Tenney, 

for 5 minutes. 

Ms. TENNEY. Thank you, Mr. Chairman. 

And I thank the witnesses for being here to testify. 

I had some questions for Mr. Heitkamp, or at least some issues. 

I, too, come from a small-business community, in rural upstate 

New York, where I actually own a small business in the area. And 

we have had many issues with access to credit. One of the problems we have is so many of our small businesses and smaller 

banks have been displaced because of regulations and just the huge 

amount of compliance that we have had to deal with in our business as well. 

Coming from New York State, which is one of the highest regulatory States, whether you are in banking, small business, high energy costs, taxes, you name it. If there is an unfunded mandate to 

send to our local governments or schools and our small-business 

community, New York will find it. 

[laughter] 

So part of that, a question I had, and I was going to ask Mr. 

Heitkamp, but I can put it to the panel or specifically would like 

to say something to address Ms. Wade because my family’s business and dealing with financing. And one of the problems we have 

had is trying to get access to capital with banks because of the new 

regulations. And I find that some of the community banks are really not in our league anymore. 

And I just wondered if there is any evidence that you have, and 

I know you may have spoken on this, and I apologize, but I just 

wanted to hear it again, if there are other avenues that you have 

cited or indicated in your testimony where small businesses are 

going for credit if it is not to a banking institution. And if you could 

just highlight a couple of those that may be other alternative forms 

of credit as opposed to using a bank. 

33 

Ms. WADE. Sure. Their primary source of funding for expansion 

or reinvestment in their business is the revenue of the business. So 

personal financing, savings, borrowing from friends and family if 

they are new, those are the main sources that they are drawing 

from. And then it is the bank that they have their primary relationship with is where they are looking to access lending. 

I think one of the areas that is frustrating for many small businesses in this new banking, regulatory scheme post Dodd-Frank is 

the area of uncertainty, not knowing why they might not be approved for the full amount that they are asking for and not having 

a response from their bank representative being able to explain if 

it is paperwork that they are not filing or why they aren’t accessing 

or why they are not able to access all their credit and not realizing 

that maybe having a relationship with a secondary bank might be 

important. 

But they certainly draw on credit cards. More are looking at online fintech lending options in accessing credit. But for the most 

part right now, it is most of their financing is coming from personal 

savings and revenue from their small business. 

Ms. TENNEY. Right. Yes, you just described exactly the circumstance that I myself have been in, maxing out my own personal 

credit cards and getting a second mortgage just to get past some 

of the cyclical nature of the businesses that we are in. 

On the fintech, that is something that is becoming talked about 

often in Washington. And can you just tell me any thoughts you 

might have on regulation in the fintech space and how that would 

affect our small-business and banking community in your opinion? 

Ms. WADE. It is still a very small portion of lending for small 

businesses. More are becoming interested in accessing or learning 

more about what products are available through fintech. And one 

of our concerns is overregulating this area of financing before it develops into something that might be very helpful for the small-business community as they are maybe losing some of the relationships 

that they have with their small, local banks and are forced to bank 

with larger banks, that they have a less successful time accessing 

credit. 

So some of that, I think, is spilling over to the fintech arena. And 

making sure that is still a viable option is important. 

Ms. TENNEY. So you are saying that the overregulation of the 

fintech business could be causing the inability to get credit on that 

side? 

Ms. WADE. We are worried, we are certainly concerned about 

overregulating of that industry where it wouldn’t be a viable option 

for small businesses to access financing going forward. 

Ms. TENNEY. Thank you. I think I am out of time. 

Thank you very much, I appreciate it. 

Chairman LUETKEMEYER. The gentlelady’s time has expired. 

The gentleman from California, Mr. Royce, is recognized for 5 

minutes. 

Mr. ROYCE. Thank you, Mr. Chairman. 

If I could just say to the panel here that combating money laundering and combating the financing of terrorism is obviously something we all agree is critical to protecting our citizens, protecting 

citizens throughout civilization. I am concerned, however, that we 

34 

are misaligning our resources and hindering legitimate customers 

and businesses from accessing capital in some situations, and I 

thought I would just bring this up. 

At least one recent study by The Clearing House concluded that 

billions in bank resources, billions, are spent on AML/CFT compliance that have limited law enforcement or national security benefit. So clearly, the system as currently designed is outdated and 

is ineffective. 

And so my local banks tell me examiners are more interested in 

quantitative measurements, like the number of compliance officers 

that are hired, or the number of suspicious activity reports filed. 

And missing in that is a focus on the qualitative side, which 

would be results-driven risk management which identifies and 

catches bad actors. And we haven’t seen much in the way of that. 

And so I was wondering if our remaining bank witness can comment on suspicious activity report filings and other rules and regulations and whether you think they are working. And also, are 

there ways to better foster cooperation and information sharing 

among banks or look at the beneficial ownership rules so that we 

can catch the bad actors while still facilitating access to capital and 

access to credit for small businesses? 

So I would just ask you, Mr. Motley, for your views on that? 

Mr. MOTLEY. Thank you. I will try to briefly give you my 

thoughts on that. We are primarily a residential mortgage lender. 

We are a depository. We have eight depository branches in the Dallas/Fort Worth area. So we take retail deposits. We do savings accounts. We do traditional banking, but we are primarily a mortgage 

banking participant. 

But the AML rule really requires us to devote a huge amount of 

resources to managing it. We could probably meet and talk to every 

customer we have at least once a year and know exactly who our 

customer is. But this AML rule is pretty onerous. And we have to 

devote a single compliance person just to that one activity. 

We file suspicious activity reports whenever we run across it, we 

find that more on our mortgage side than we do on the depository 

side, because really we take great care in knowing who it is that 

is opening up an account with us. 

So for a bank like us, I think that rule is overbearing. And there 

could be some opportunity for some relief. 

Mr. ROYCE. I will ask you another question. Your bank services 

mortgages, so you are in a unique position to offer, I think, some 

perspective here on the proposed Basel III increases in the riskweighting for mortgage servicing rights. 

So there would be really two points to you, and the first would 

be understanding that there is some volatility in these instruments 

as the interest rates change, do you believe the risk to your balance 

sheet necessitates higher capital requirements and different capital 

treatment? 

And the second question I would ask you is, what is the impact 

on your relationship with borrowers if you then are unable to hold 

onto the servicing rights on the mortgages that you originate? 

Maybe you can walk us through that. 

Mr. MOTLEY. Thank you. To answer your first question, capital 

is important. Capital supports our business. We are a highly capVerDate Nov 24 2008 16:34 Mar 15, 2018 Jkt 027368 PO 00000 Frm 00040 Fmt 6633 Sfmt 6633 K:\DOCS\27368.TXT TERI
35 

italized institution. We are at 21 percent of assets is our capital. 

And so we can support our mortgage lending activity, but Basel III 

will prevent us from growing that business that we have been in 

now for 65 years. We have 180,000 customers. We like having those 

customers. We have a high concentration of mortgage servicing 

rights to capital. Under the Basel rule, that would be restricted 

down to 10 percent. 

And when that happens, that means we are going to have to— 

one way to correct it is either grow a whole lot more capital, we 

are a private entity, that is not so easily done, we are also a familyowned bank. So the alternative is, is to let those mortgages run off 

or sell the mortgages to somebody else, to sell that relationship 

down the road to someone else. And one of the things that many 

of our customers tell is is they came to us because they wanted us 

to service their loan. 

Mr. ROYCE. So that does impact directly your relationship with 

them in the sense that this becomes the— 

Mr. MOTLEY. It absolutely does, yes, sir. 

Mr. ROYCE. Yes. 

Mr. Chairman, thank you. 

Chairman LUETKEMEYER. The gentleman’s time has expired. 

We have a gentleman here today who is not a member of the 

subcommittee, but has a phenomenal background in financial services, and serves on the full Financial Services Committee and 

wants to participate in the hearing. 

Without objection, the Chair seeks unanimous consent for the 

gentleman from Arkansas, Mr. Hill, to be recognized for 5 minutes 

to question the witnesses. Without objection, it is so ordered. 

The gentleman from Arkansas is now recognized. Welcome. 

Mr. HILL. I appreciate the chairman and the ranking member’s 

indulgence. Thank you for that. It is always nice to have an interloper drift into your subcommittee, so thanks for letting me participate. 

Thank you, panel, for being with us, and sticking with the cause 

over this long afternoon. 

Chair Yellen testified before the Senate and the House in the 

last couple of weeks and was just emphatic that there is no lending 

problem in our country, that lending is at an all-time high and that 

small-business people, Ms. Wade, are not complaining about access 

to credit. In fact, she says that only less than 4 percent of small 

businesses say they have no access to credit. 

Senator Warren described that was the real facts and that anyone who disagreed with Chair Yellen was in fact proposing alternative facts. 

So, Mr. Chairman, I would like to enter in the record some alternative facts, an article entitled, ‘‘Why We Must Base the Banking 

Regulation Debate on Real Data,’’ by Paul Kupiec from AEI. 

In that article, it says that the Federal Reserve’s own data shows 

that small-business lending is 14 percent below pre-crisis levels 

from $700 billion in 2008 to $600 billion today. 

The Fed’s own research shows that smaller banks play an outsized role in providing small-business credit. And without effect, 

the largest banks have not filled the lending gap. The dollar volVerDate Nov 24 2008 16:34 Mar 15, 2018 Jkt 027368 PO 00000 Frm 00041 Fmt 6633 Sfmt 6633 K:\DOCS\27368.TXT TERI
36 

ume of small-business loans made by banks with more than $10 

billion in assets declined by 5 percent over the same period. 

So I would like the panel’s views on commercial paper markets 

in this country before the crisis were $2 trillion weekly; now it is 

about $900 billion. So it is my view that one of the biggest contributors to this CNI loan number up there are loans to the biggest 

companies in our country, our Nation that used to finance themselves through commercial paper. 

Does anyone have a view on that? 

Ms. Wade? 

Ms. WADE. We have certainly seen low borrowing levels. That is 

the missing component when folks talk about the 4 percent not 

being able to satisfy their borrowing needs is that there aren’t borrowers as we would normally see in an expansion. 

The reasons that there aren’t as many borrowers, they don’t feel 

it is a good time to expand their business. They aren’t optimistic 

about business conditions in the next 6 months and they are not 

willing to risk their profits and resources in investing in their business without a full understanding that the economy is going to 

grow at a rate that they will be able to pay back these loans and 

use the resources effectively. So I think that is one of the biggest 

missing components in the conversation for small businesses. 

And then, again, for those who are seeking credit and are able 

to access loans, not understanding what is asked of them from the 

small-banking community or the small banking community. For 

the small banks having that level of uncertainty, when there is uncertainty in the small banks and there is uncertainty in the small 

business, it is a terrible circumstance to facilitate growth in the 

small-business community and grow their businesses. 

Mr. HILL. We have certainly seen that in my district where we 

only, since the summer of 2007, only have 1,300 more people employed in my congressional district than we did in July of 2007 and 

only 5,000 more people in the workforce. So it is a very slow 

growth, as you point out, recovery, so there are not very many 

prospects. 

I want to talk about TILA–RESPA, Mr. Motley. The Urban Institute thinks that there would be about 5 million more mortgages 

made if we didn’t have the combination of TILA–RESPA, QM, ability to repay in that period. And if you look at S&P data, home equity loans since 2011 have declined 3 percent per year in that period of time. 

And there is no doubt that one of my constituents in my district 

reported that just over the last 3 years, his qualified mortgage 

loans since 2013 have dropped 15 percent a year in eligible credit 

because of the rules. 

What do you think we can do to improve TILA–RESPA? And I 

know you have already put on the record ability to repay and QM. 

So what are your thoughts on TILA–RESPA? 

Mr. MOTLEY. The penalties of failing to execute the TRID rule 

disclosures properly can be catastrophic for a small lender because 

that loan is going to end up being most likely non-salable, not 

going to be able to be delivered to another investor, private investor. 

37 

While Fannie Mae and Freddie Mac don’t regulate disclosures, 

they do expect lenders to follow the rule. And without Fannie Mae 

and Freddie Mac and the GSE patch that we have right now, lenders would be hurt quite badly because the rules are so specific. Investors are reluctant to buy non-QM loans because of the penalties 

that are associated with it. 

So I think that what we could do to improve upon it, first, is to 

provide better written guidance that can be relied upon by the 

CFPB. I think that would be the best thing we could do. And then 

the second thing we could do is to expand in a moderate way the 

definition of a QM loan specifically as it impacts low- to moderateincome borrowers. 

Mr. HILL. Thank you, Mr. Chairman. Thank you for the time, 

Mr. Chairman. 

Chairman LUETKEMEYER. Thank you for joining our subcommittee today. 

And with that, we are at the end of our hearing, and I would certainly like to thank our witnesses. We had a great panel today, 

with a lot of great information. 

One point of clarification, Mr. Motley. In your testimony, you 

talked about the increased cost of doing a mortgage loan. And my 

calculations said that it increased about 70 percent in the last 7 

years. Would that be pretty close? 

Mr. MOTLEY. That would be pretty close, yes, sir. 

Chairman LUETKEMEYER. Just rough ballpark figures there. That 

is breathtaking. If you look at that cost having to be passed on to 

consumers, it is a significant enough cost that I am sure that it 

makes a difference to some people’s ability to even take out a loan. 

So I thank you for that information. 

Also, I know during the hearing, points were made with regards 

to the Community Reinvestment Act, the Bank Secrecy Act, and 

appraisals. A lot of you made points on those three things. And 

those are going to be items that we are going to talk about in succeeding hearings. They have been brought to my attention by a lot 

of other banking groups, people in the financial services industry, 

that there are concerns, problems, issues with those that we need 

to take a look at. 

And so we appreciate your testimony along those lines because, 

again, it points out that I think your testimony shows that there 

is an interest and there is a problem there that we need to take 

a look at. So I thank you for that as well. 

But again, thank you for your participation here. It has been 

great. 

The Chair notes that some Members may have additional questions for this panel, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to these witnesses and to place their responses in the record. Also, without objection, Members will have 5 legislative days to submit extraneous 

materials to the Chair for inclusion in the record. 

And with that, the hearing is adjourned. 

[Whereupon, at 4:41 p.m., the hearing was adjourned.] 

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