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AN EXAMINATION OF THE CHALLENGES 

FACING COMMUNITY FINANCIAL 

INSTITUTIONS IN WEST VIRGINIA 

FIELD HEARING 

BEFORE THE

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS 

AND CONSUMER CREDIT 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

AUGUST 20, 2012 

Printed for the use of the Committee on Financial Services 

Serial No. 112–154 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

SPENCER BACHUS, Alabama, Chairman 

JEB HENSARLING, Texas, Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, North Carolina 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

MICHELE BACHMANN, Minnesota 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

NAN A. S. HAYWORTH, New York 

JAMES B. RENACCI, Ohio 

ROBERT HURT, Virginia 

ROBERT J. DOLD, Illinois 

DAVID SCHWEIKERT, Arizona 

MICHAEL G. GRIMM, New York 

FRANCISCO ‘‘QUICO’’ CANSECO, Texas 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

FRANK C. GUINTA, New Hampshire 

BARNEY FRANK, Massachusetts, Ranking 

Member 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

ANDRE ́ CARSON, Indiana 

JAMES A. HIMES, Connecticut 

GARY C. PETERS, Michigan 

JOHN C. CARNEY, JR., Delaware 

JAMES H. CLINGER, Staff Director and Chief Counsel 

(III) 

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT

SHELLEY MOORE CAPITO, West Virginia, Chairman 

JAMES B. RENACCI, Ohio, Vice Chairman 

EDWARD R. ROYCE, California 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, North Carolina 

JEB HENSARLING, Texas 

PATRICK T. MCHENRY, North Carolina 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

FRANCISCO ‘‘QUICO’’ CANSECO, Texas 

MICHAEL G. GRIMM, New York 

STEPHEN LEE FINCHER, Tennessee 

FRANK C. GUINTA, New Hampshire 

CAROLYN B. MALONEY, New York, 

Ranking Member 

LUIS V. GUTIERREZ, Illinois 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

RUBE ́ N HINOJOSA, Texas 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

NYDIA M. VELA ́ ZQUEZ, New York 

GREGORY W. MEEKS, New York 

STEPHEN F. LYNCH, Massachusetts 

JOHN C. CARNEY, JR., Delaware 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

August 20, 2012 ................................................................................................ 1 

Appendix: 

August 20, 2012 ................................................................................................ 27 

WITNESSES 

MONDAY, AUGUST 20, 2012 

Brewer, Tom, President and Chief Executive Officer, Peoples Federal Credit 

Union ..................................................................................................................... 7 

Brown, Sarah K., attorney, Mountain State Justice, Inc. .................................... 11 

Hageboeck, Charles, President and Chief Executive Officer, City National 

Bank ...................................................................................................................... 5 

Loving, William A., President and Chief Executive Officer, Pendleton Community Bank .............................................................................................................. 9 

Wohlever, JW, owner, Mountaineer Mobile Homes, LLC .................................... 10 

APPENDIX 

Prepared statements: 

Brewer, Tom ...................................................................................................... 28 

Hageboeck, Charles .......................................................................................... 39 

Loving, William A. ............................................................................................ 59 

Wohlever, JW .................................................................................................... 68 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Capito, Hon. Shelley Moore: 

Written statement of Hon. John D. Rockefeller IV, a United States Senator from the State of West Virginia ........................................................... 73 

Written statement of Cyclops Industries, Inc. ............................................... 75 

(1) 

AN EXAMINATION OF THE CHALLENGES 

FACING COMMUNITY FINANCIAL 

INSTITUTIONS IN WEST VIRGINIA 

Monday, August 20, 2012 

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 11:08 a.m., at the 

Robert C. Byrd U.S. Courthouse, 300 Virginia Street, East, 

Charleston, West Virginia, Hon. Shelley Moore Capito [chairwoman 

of the subcommittee] presiding. 

Members present: Representatives Capito and Renacci. 

Also present: Senator Manchin. 

Chairwoman CAPITO. This field hearing will come to order. 

Before making opening statements, first of all, I would like to 

give everyone an overview of the procedure today. I will make an 

opening statement, followed by Senator Manchin and Congressman 

Renacci. I want to welcome both of them here. 

Each witness will then be recognized for a 5-minute opening 

statement summarizing their written testimony, which they have 

already submitted, and which is on the table for those of you who 

would like to see it. We will then begin several rounds of questioning, where Members will be recognized for 5 minutes of questioning. 

So, I would like to thank everyone for joining us here today. This 

is the Financial Institutions and Consumer Credit Subcommittee, 

of which I am proud to be Chair. It is a part of the Financial Services Committee in Congress. When I assumed this chairmanship in 

January of 2011, one of my big priorities was to get around to different communities around the country. 

So far, we have been to Georgia, which, if you’re unfamiliar with 

the numbers, Georgia has had an enormous amount of bank closures. I think they’re up over 65 or 70; Wisconsin; Illinois; Texas; 

Nevada; and Ohio, we went to Mr. Renaccis home district in Cleveland. Each field hearing has highlighted different challenges facing 

small financial institutions and the communities that they serve. 

So I wanted to highlight some of the economic and regulatory challenges we face here in West Virginia and the effect on small institutions and clients in the communities that they serve. 

As I said, I am pleased to be joined here today by the vice chairman of my subcommittee, Jim Renacci from Ohio. Before coming to 

2 

Congress, Jim spent his career as a small business owner and entrepreneur in a lot of different businesses. He understands the difficult growth environment facing small businesses and financial institutions, and has been a tremendous asset to me and to our subcommittee. I’m also extremely pleased that Senator Manchin is 

here with us today. We know Senator Manchin was in business 

well before he began his political career and has spent his political 

career helping small businesses and business investments. 

Four years ago, this Nation experienced one of the greatest financial crises in a generation. It was a combination of increased 

demand for housing, very lax underwriting standards, and a demand for subprime mortgage-backed securities from Fannie Mae, 

Freddie Mac, and Wall Street investment bankers that brought our 

Nation’s financial systems to a precipice. 

In 2008, the U.S. Government bailed out the Nation’s largest financial institutions in an attempt to stabilize the financial system. 

As most of you in the room know, I voted against the bailouts of 

the larger banks because I firmly believe firms that take on too 

much risk should pay the consequences for their actions. During 

the Dodd-Frank debate, I championed an effort to create a new 

code of bankruptcy to deal specifically with complex financial institutions. I lost that ballot. We now have what is called the Orderly 

Liquidation Authority, which will deal with unwinding these institutions but also has the ability to access the United States Treasury, and to me, that is ‘‘too-big-to-fail.’’ 

With passage of the Dodd-Frank Act, the Nation’s financial regulatory system is undergoing significant restructuring. Some of the 

proposed rules have merit. For instance, increased capital requirements for the largest financial institutions are one way to prevent 

government bailouts. There are also some transparency and disclosure in there that I think is extremely important. 

As the regulatory regime for the financial system undergoes this 

restructuring, it is important to ensure that rules and regulations 

are not applied in a one-size-fits-all manner, which will be the 

focus of our committee meeting today. 

West Virginia’s community banks and credit unions did not cause 

the financial crisis, yet in many cases they are facing the same 

wave of new regulations as the largest financial firms. We are here 

today to learn about the effect the implementation of these rules 

is having on small financial institutions and credit unions. 

If we do not strike the appropriate balance for regulations applied to small institutions, we run the risk of further constriction 

of credit, and we are going to get into that today. This is especially 

troubling for States like West Virginia because we rely—and this 

is in the written testimony that you all have submitted—exclusively on small financial institutions for credit and lending. 

West Virginia has already witnessed the devastating impact that 

poorly conceived Federal regulations can have on an industry. We 

must make sure that as financial regulations are being created, 

they are appropriately tailored to the scope and the size of the institutions to which they are applied. Small financial institutions 

are crucial to provide the capital necessary for small businesses to 

grow. If they are hamstrung by uncertainty and a one-size-fits-all 

3 

regulation, they will not be able to get our economy back on track 

and help small businesses grow and create jobs. 

I would like to thank our panelists for joining us this morning, 

and I now recognize my friend Senator Manchin for the purpose of 

making an opening statement. 

Senator MANCHIN. Let me just say thank you, first of all, Congresswoman Capito, for having this hearing here in West Virginia 

so we can bring our local expertise from around our State to be 

able to speak to us and we can take that back to our respective 

bodies of the Senate and the House. I also want to thank Congressman Renacci for coming in and taking time from his family. I know 

how tough that can be. You don’t get much time anyway, so it 

makes it very special for him to do that. 

The concerns I have, being a first-term Senator, and with the collapse that we had, being a Governor at the time, watching what 

had happened, seeing the access to capital was probably one of the 

most detrimental problems that we had and can be the 

compounding problems that just continue to fester as far as the 

businesses, and having access basically, putting everybody into one 

blanket, if you will, when this came about with the financial fiasco, 

a lot of people attributed what was the last sequel, whatever you 

want to attribute it to, relaxing happening with the larger banks, 

the investment banks. 

The community banks in no way, shape or form are responsible 

for this, but yet they got caught up in the same brush, and with 

that, we have been working on legislation on the Senate side, myself and Jerry Moran, a Republican from Kansas, working together 

in a bipartisan way trying to bring some relief and looking at really 

where the problems are. We have a lot of people in the Senate right 

now who are concerned about making any moves or taking any 

steps that might basically cause a problem again, and we don’t 

want to do that. But if the community banks are not a problem, 

the community banks can jumpstart our small businesses, why 

can’t we give them some relief, a whole different pathway, and I 

think that’s what we are really trying to do. We are trying to find 

out how we can best go back in a bipartisan way, Democrats and 

Republicans, to find out how we can attempt to get this economy 

moving by getting capital into it. 

I have introduced two pieces of legislation, I know Congresswoman Capito and myself both on one extensively, which gives relief as far as how proper they’re being heard in the field process. 

We think it should be done in a very quick manner versus 8, 10, 

12 months and you have no uncertainty. We are trying to get that 

expedited and also the Manchin/Moran bills, a financial institution 

examination fairness and reform and we think that will help immensely, so we are working very—I know you all have been very 

much interested in the issue, supported it, and I encourage you to 

be very vocal with all of your colleagues around the country, to try 

to help get the relief that’s going to be needed at this time, and I 

appreciate so much the opportunity to hear from you all today, 

thank you. 

Chairwoman CAPITO. Thank you. I would like to welcome here 

today, too, the State Commissioner of Banking, Sally Cline. Thank 

you for coming and being with us today. Now, I would like to introVerDate Nov 24 2008 17:29 Dec 05, 2012 Jkt 076125 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 K:\DOCS\76125.TXT TERRI
4 

duce for the purpose of making an opening statement, Jim Renacci 

from Ohio, my vice chairman of the subcommittee. Welcome. 

Mr. RENACCI. Thank you, Madam Chairwoman. I will begin by 

saying it is a pleasure to be here with my neighbors in West Virginia. It’s not a long trip down here from Ohio. In fact, I’m happy 

to see some of my friends representing credit unions here today as 

well. Madam Chairwoman, I want to thank you for your diligent 

leadership during the committee’s efforts to shine a light on burdensome regulations that are stifling our economic recovery. 

I believe this hearing is the last in a series of field hearings 

where we have the pleasure of hearing from small business community banks from across the country. I want to applaud you for 

taking these hearings to the people. 

I believe a large part of our Nation’s problem is that many of 

those writing the rules in Washington have never actually had to 

live under those rules. I believe many of those in Washington have 

no idea what it takes to run a business and have no idea how difficult Washington has made the lives of our small business owners. 

While in D.C., we hear from a lot of academics, trade groups, special interests and, of course, plenty of regulators. We seldom have 

the opportunity to hear from witnesses like we have here today. 

Let’s face it, I’m sure all of you would much rather be spending 

your time running your businesses, than coming to Washington to 

talk about onerous regulations. That’s why I believe these hearings 

are so important. It is imperative that we can share real-life stories 

while the partisan bickering, gridlock, and uncertainly have a hand 

in government intervention in preventing entrepreneurs from 

righting our economic ship. 

I had the pleasure of hosting a similar field hearing in Cleveland 

earlier this summer. I am proud to say that Ohio is home to some 

of the finest financial institutions in the country, and I have no 

doubt these institutions are committed to getting our economy and 

our country back on track. Unfortunately, the same frustrations we 

heard in Cleveland are the same we have heard across the country 

from Nevada to Texas and all the way to Wisconsin. We constantly 

hear from frustrated small business owners who are eager to expand their business but are prevented from doing so because they 

cannot access the necessary capital. 

At the same time, we have heard from financial institutions that 

are ready to extend capital to these small businesses and have capital to do so, but are unable to do so because of overzealous, inconsistent, and ever-changing regulations. As I expect will be the case 

here today, the number one concern we have heard by all is the 

Dodd-Frank Act. The intentions were noble, to prevent another financial crisis, improve transparency, stop banks from taking excessive risks, prevent use of financial practices, and end too-big-to-fail. 

Unfortunately, instead of sound regulations aimed at reining in 

the fraudulent and reckless behavior of Wall Street, we ended up 

with thousands of pages of regulations which are crippling institutions and have nothing to do with the crises and the very institutions we must rely on to rebuild our economy. Instead of sound regulations, we have left many of the financial institutions standing 

on the sideline, unwilling and unable to provide liquidity on arguVerDate Nov 24 2008 17:29 Dec 05, 2012 Jkt 076125 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 K:\DOCS\76125.TXT TERRI
5 

ments because they are unsure what the rules are and when they 

might be unilaterally changed again. 

The uncertainty and the cost of new regulations is having an especially profound impact on our smaller institutions. Without a 

large compliance staff and back office legal teams, our smaller institutions are forced to divert precious capital to keep up with new 

regulations, capital that would be better put to the hands of its 

customers. 

I would like to end by saying that I understand what it’s like to 

live under these rules coming out of Washington. As a businessman 

for almost 30 years, I can sympathize with your struggles and I understand that in order to turn this country around, we must get 

Washington out of the way. We must let all of you run your own 

business the way you know best. I want to thank you for being 

here today, and I look forward to your testimony. 

Chairwoman CAPITO. Thank you. So with that, we will begin to 

hear from our witnesses. Our first witness is Mr. Charles 

Hageboeck, but I know him as Skip, president and chief executive 

officer of City National Bank, on behalf of the West Virginia Bank 

Association. Welcome. 

STATEMENT OF CHARLES HAGEBOECK, PRESIDENT AND 

CHIEF EXECUTIVE OFFICER, CITY NATIONAL BANK 

Mr. HAGEBOECK. Thank you. Chairwoman Capito and members 

of the subcommittee, my name is Skip Hageboeck, and I am president and CEO of City National Bank headquartered here in 

Charleston. City National has $2.8 billion in assets, 73 branches located mostly in West Virginia, and over 800 employees. 

I appreciate that the committee is taking time to look at how 

banks which play a critical role in helping our economy grow are 

being impacted by the furious pace of new regulation in our industry and in particular the unintended consequences of such regulation. I’m thankful for the opportunity to present my views on the 

challenges facing community banks and particularly how regulatory impediments are making it increasingly difficult for banks 

like City National to help businesses and consumers borrow money 

to purchase homes, expand businesses, and efficiently transact 

their depository needs. 

The banking system is made up of a few large banks which control the majority of the banking assets, and a large number of community banks. Community banks like City National generally operate pretty simple organizations. We make small loans to consumers 

and businesses and we accept deposits. And while our business 

model is pretty simple, in general the products and services that 

we provide meet all the banking needs for our consumers and small 

business clients. As compared to large banks, we know our employees, our customers, our communities, and what’s going on in our 

banks. 

West Virginia is a small State, but it is home to 68 separate community-based banking charters. Community banks operate in small 

cities and towns that large banks avoid. We focus on smaller businesses and consumers. Our presence increases competition and 

makes credit available on better terms and with better service and 

6 

they’re more involved in supporting the community with both dollars and with our time. 

The bottom line is for many small cities and towns, the community bank is an important part of the economic fabric, and these 

towns would be worse off in the absence of community banks. But 

the viability of the community bank model is under attack. Earnings are under pressure as a result of the recession. At the same 

time, the burden of complying with regulation is more onerous than 

it has ever been before. 

The most important problem facing the banking industry today 

is the weak economy. Our customers will borrow and create jobs 

only when they believe that the economy can support higher sales. 

For City National, I can tell you that loan requests from customers 

who are growing their businesses have been slowing rather than 

increasing since the beginning of the year, signaling that the economy is now decelerating rather than expanding. It’s a tough time 

to be a community bank. Loan demand is weak, interest rates are 

low, and sources of income are decreased. 

For many community banks, loan losses during recession reduce 

their capital levels, and while big banks were able to go out and 

recapitalize by issuing new common stock, small community banks 

that need new capital can’t get it, which restricts their ability to 

lend. Within capital limits, many community banks find their ability to lend within their communities to be compromised. 

New regulation to make community banks subject to depository 

capital requirements is a significant threat for community banks 

that have large residential mortgage loan portfolios. So again, actually, it’s a great example, because we hold a large number of mortgage loans, we think the implementation of Basel III will reduce 

our capital ratios and reduce our ability to lend to consumer and 

small business customers. 

I encourage Congress to delay implementation of Basel III capital 

requirements for community banks and carefully study the consequences of implementing these requirements for community 

banks. 

Bankers understand the need for regulations which ensure that 

banks remain safe and sound and that customers are adequately 

protected from abuse. What we don’t understand is the explosive 

proliferation of regulation, most of which was enacted to address 

problems not associated with community banks, but which have 

nevertheless cost us tremendous amounts of money, distracted us 

from our core business purposes, and frequently had unintended 

consequences that are detrimental to our company and our customers. 

In my written testimony, I have provided numerous examples of 

regulations that have been problematic for City National, including 

ATM placards; privacy notices; burdensome regulation of our foreclosure process with no apparent purpose; student lending regulations, which forced City to stop making loans to customers for student loans; the negative customer impact of flood insurance regulations; City’s concern that narrowly defined qualified mortgage could 

undermine our successful record in making mortgages for West Virginia customers; the negative customer impact of regulations surrounding the Consumer Financial Protection Bureau’s (CFPB’s) atVerDate Nov 24 2008 17:29 Dec 05, 2012 Jkt 076125 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 K:\DOCS\76125.TXT TERRI
7 

tempt to improve mortgage disclosures; the negative customer impact of risk retention requirements for secondary market loans; unintended consequences of regulations for high-priced mortgages, 

which hurt consumers; unintended consequences of regulations on 

derivatives requiring our small business customers to be qualified 

participants, a test most customers can’t pass, which will limit our 

ability to help our customers obtain long-term fixed rate loans; and 

unintended consequences of regulations of municipal advisers that 

will hinder our ability to provide banking services to cities and 

counties. 

Hopefully, these examples help to highlight that well-meant regulation often comes with unexpected results, and often these results are not in the best interests of our customers, or not in our 

best interest, and by extension are not in the best interest of our 

communities either. Thanks. 

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

39 of the appendix.] 

Chairwoman CAPITO. Thank you very much. Our next witness is 

Mr. Tom Brewer, who is president of Peoples Federal Credit Union, 

on behalf of the West Virginia Credit Union League. Welcome. 

STATEMENT OF TOM BREWER, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, PEOPLES FEDERAL CREDIT UNION 

Mr. BREWER. Chairwoman Capito, Vice Chairman Renacci, Senator Manchin, thank you for the opportunity to testify at today’s 

hearing on challenges facing financial institutions in West Virginia. 

My name is Tom Brewer, and I am president of Peoples Federal 

Credit Union in Nitro, West Virginia. 

The major change I have seen in my position involves an increase in regulatory compliance and the multitude of complex regulations we must now address. These come from not only the regulator, the National Credit Union Administration, but also from the 

Federal Reserve and other Federal and State agencies. Now with 

the creation of the Consumer Financial Protection Bureau, more 

concerns are raised as they also begin to issue new regulations. 

Regulatory compliance is a priority for credit unions and we 

struggle to remain fully compliant with the multitude of regulations. Peoples employs 29 full-time individuals to operate 3 locations, and one of these individuals is devoted full-time to compliance. With a small staff, having someone devoted full-time to compliance is a financial burden that was unheard of only a few years 

ago and diverts resources from other member services. The cost of 

compliance does not vary by size and is a greater burden for the 

smaller institutions. 

If a small credit union wants to offer a new service, it has to be 

concerned about complying with the same rules as a large institution, but it is only able to spread those costs over a much smaller 

number of businesses. Today, there are 100 credit unions operating 

in West Virginia, with roughly half of them having less than $10 

million in assets. Small credit unions consistently say their number 

one concern is the regulatory obstacle in maintaining services in 

the face of increasing regulations, and that is the key reason why 

some merge into larger credit unions. 

8 

Of all the challenges we face in today’s difficult financial environment, coping with compliance tops the list. There is nothing in the 

current climate of regulations that you could consider positive for 

economic growth in West Virginia. 

One area where improvement could be made with regard to economic growth would be the passage of legislation to increase the 

cap on member business lending for credit unions. By passing H.R. 

1418, an additional $13 million in new capital for small business 

loans could be generated, creating an estimated 140,000 jobs nationally, and in West Virginia, that amounts to 31 million new 

business loans and 335 new jobs. 

Peoples serves as a financial lifeline for many in our three county 

communities. In fact, we are seeing smaller loans for such items as 

tires, hot water heaters, or loans to have utility services restored. 

There’s little doubt many of our members are living paycheck-topaycheck, and we strive to assist them with a wide median of affordable financial services. 

Peoples has experienced a significant increase in our deposits 

over the past few years as consumers seek safe and sound institutions to place their savings dollars. While we appreciate this confidence, with tight margins it does place a stress on our capital. 

I also recognize the role of the regulator is to evaluate financial 

performance and determine how well risk is being managed. However, there are many variations among credit unions in how risk 

is evaluated. We have an expectation of uniformity in the examination process and that expectation at times is not being met. 

For the most part, the examination process works fairly well. To 

strengthen the process, however, I strongly support H.R. 3461, the 

Financial Institutions Examination Fairness and Reform Act, as a 

way to ensure additional dependability in exams and to provide 

needed change in the appeals process. 

Overall, credit unions in West Virginia have a bright future. Deposits are increasing and loans are beginning to rise slightly once 

again; however, the number of credit unions continues to decline. 

In some cases, this is due to plant closings or company downsizing; 

however, for others it is due to the difficulty of operating a credit 

union in the environment of increased and complex regulations. 

When mergers occur, oftentimes local ownership is lost and a once 

successful community-based institution is gone forever. 

Thank you for the opportunity to testify before your subcommittee, and I’ll be happy to respond to any questions you may 

have. 

[The prepared statement of Mr. Brewer can be found on page 28 

of the appendix.] 

Chairwoman CAPITO. Thank you. Our next witness is Mr. William A. Loving, president and chief executive officer of Pendleton 

Community Bank, on behalf of the Community Bankers of West 

Virginia. Welcome. And you are also the president-elect of the Independent Community Bankers of America, correct? 

Mr. LOVING. Correct. 

Chairwoman CAPITO. Good luck. 

9 

STATEMENT OF WILLIAM A. LOVING, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, PENDLETON COMMUNITY BANK 

Mr. LOVING. Thank you. Chairwoman Capito, Vice Chairman 

Renacci, and Senator Manchin, my name is Bill Loving and I am 

president and CEO of Pendleton Community Bank, a $260 million 

community bank located just about 200 miles from here in a small 

town of 781 people, Franklin, West Virginia. Thank you for inviting 

me here today to share with you my thoughts on the shape and the 

future of community banking in our great State. I’m also proud to 

be here representing all of the community bank members of the 

Community Bankers of West Virginia. 

The government’s role in the day-to-day operation of the community bank has grown dramatically over the last decade, and I see 

that trend continuing at an alarming rate. I honestly cannot think 

of one aspect of my bank that is not heavily influenced by Federal 

regulation. My staff and I spend exponentially more time today 

working to ensure we are in compliance with Federal regulations 

than we did before the banking crisis of 2008. I can assure you that 

Pendleton played no part in causing Wall Street’s financial mess, 

yet we are saddled with most of the same burdens as the too-bigto-fail banks. 

The most important point I can make to you is this: For community banks, every dollar spent on compliance is a dollar less that 

we have to invest and lend in the communities we serve. Every 

hour I spend on compliance is an hour I could be spending with 

customers and potential customers acquiring new deposits and 

making new loans. 

I could spend most of the day talking to you about overly burdensome regulations, but since my time is limited, let me highlight a 

few issues that are particularly concerning to community banks. 

First, the proposed rules to implement Basel III are quite possibly 

the most serious regulatory threat facing community banks today. 

If these rules are not changed or if community banks are not provided some relief, these rules could have potential to make community banking itself a losing proposition and trigger further industry 

consolidation. 

It’s important to remember that Basel III was meant to apply to 

the largest interconnected internationally active banks. Applying 

international standards in a one-size-fits-all fashion demonstrates 

a failure to appreciate the differences between a bank like mine 

and the largest banks. 

Let me give you some idea of what these regulations would mean 

to my bank. Please understand that the calculations we made are 

based upon a series of assumptions, because neither our systems 

nor any provided by the regulators allow us to adequately delineate 

the components of this proposal. 

With that said, based upon our numbers, Pendleton will see an increase in our risk-weighted assets from $180 million to $208 million. That’s a 15.5 percent capital charge we will have to absorb. 

Chairwoman Capito, that is $28 million that I will not be able to 

lend and invest in West Virginia. 

Next, new CFPB rules are a significant source of risk. In particular, the proposed ability to repay determination in mortgage 

underwriting has the potential to expose lenders to significant legal 

10 

liability in the event of a default. We have urged the CFPB to provide a safe harbor legal protection standard. Without a safe harbor, 

many community banks will withdraw from the market, making it 

less competitive and more costly for borrowers in rural areas like 

mine and small communities throughout West Virginia. 

We are also very grateful to you, Chairwoman Capito, for introducing the Financial Institutions Fairness and Reform Act. This 

bill will go a long way toward improving the difficult examination 

environment faced by many community bankers across the country. 

I would also like to note that another concern for community 

bankers is a new municipal advisor registration requirement. We 

are very concerned that a provision of the Dodd-Frank Act could 

be interpreted broadly by the SEC, forcing thousands of small 

banks to register as municipal advisors and be examined by the 

SEC for something that’s simply discussing current CD rates with 

the town treasurer over the phone. We’re glad the committee 

passed H.R. 2827, introduced by Congressman Dold, which would 

exempt banks and our employees from this requirement. 

I would also urge this committee to consider a topic of equivalent 

interest to community banks, the need for a temporary extension 

of the FDIC’s TAG Program. Extending TAG for an additional 5 

years would serve the same goals I have stressed in this testimony: 

preserving community bank viability; supporting small business 

credit; and deterring further and future consolidation, all by keeping local deposits locally invested. 

Thank you for the opportunity to be here today, and I look forward to your questions. 

[The prepared statement of Mr. Loving can be found on page 59 

of the appendix.] 

Chairwoman CAPITO. Thank you. I would like to ask, with your 

consent, to insert into the record two statements: one from Ms. Kim 

Mack of Cyclops Industries; and the other from Senator Jay Rockefeller. Without objection, it is so ordered. 

Our next witness is Mr. John Wohlever of Mountaineer Mobile 

Homes in Martinsburg. Welcome. 

STATEMENT OF JW WOHLEVER, OWNER, MOUNTAINEER 

MOBILE HOMES, LLC 

Mr. WOHLEVER. Thank you. Thank you, Chairwoman Capito, 

Vice Chairman Renacci, and Senator Manchin for the invitation 

and the opportunity to be here today. 

My name is J.W. Wohlever, and I own Mountaineer Mobile 

Homes. We help individuals purchase and sell used mobile homes, 

and I would like to talk a little bit about the trouble that we have 

and our clients have just due to a lack of funding from community 

banks. 

We measure our business from three metrics, the metrics being 

the average price for one of our transactions per year, which is, applying over the last 3 years, of about $45,000 a transaction to right 

now at about $22,000. The second metric is the number of transactions we do per year, which has declined from 24 down to about 

16. And the biggest metric is that Mountaineer Homes used to finance 60 to 40 percent, and we’re down to about 10 percent a year, 

so virtually it’s an all cash business. 

11 

Anybody who has a home that’s valued at $30,000 or more has 

insurmountable odds that we’re going to find a cash buyer to get 

that transaction done. Two years ago, or 3 years ago, we really 

were dealing with about 6 community banks and one national 

bank, and of all those banks right now, we have one community 

bank that’s still doing chattel loans, where you have a mobile home 

on rented land or a mobile home park. We only have one source 

in Martinsburg that will make that loan. 

I believe the reason that these community banks have gotten out 

of that is the Dodd-Frank Act. I believe that one of those provisions 

in there that if they make bad loans or they don’t run their business properly, the Federal regulators can take over that bank, just 

scares them to death, so they have just contracted their lending 

practices to the point where they want to really stick to more traditional single-family homes and have gotten away from these chattel 

loans. And that really has left my company with limited options 

and a lot of mobile homeowners with limited options. 

I think the statistic is about 8 percent of all the homes in the 

United States are mobile homes. That’s about 11 million homes. 

There are a lot of folks out there who could use that, and they have 

become part of that cycle of getting out of the rentals, moving into 

homes, stepping up into single-family homes. There’s a lot of that. 

So we even looked at the prospect of saying, okay, let’s just raise 

private capital and maybe we could become an active lender ourselves. And when we looked at the SAFE Act combined with the 

RED Laws, both regulations are just prohibitive. There’s just no 

way we can deal with it, and my opinion is that only the big banks 

would have the ability to comply with those two regulations, so, 

therefore, it wasn’t an option. 

And while there’s a little bit better options for new mobile 

homes, I think last year in 2011 they built 50,000 new mobile 

homes, and 50,000 compared to 11 million really leaves a lot of mobile homes out there that make it tough. So that’s—what I would 

like to let the committee know is I think the Dodd-Frank Act has 

really scared these small and medium-sized banks which make up 

the majority of the community banks. I think it has just scared 

them to death away from mobile home lending. Thank you very 

much. 

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

68 of the appendix.] 

Chairwoman CAPITO. Thank you. And our final witness is Ms. 

Sarah K. Brown, attorney for Mountain State Justice, Incorporated. Thanks for coming. 

STATEMENT OF SARAH K. BROWN, ATTORNEY, MOUNTAIN 

STATE JUSTICE, INC. 

Ms. BROWN. Thank you, Chairwoman Capito, Vice Chairman 

Renacci, and Senator Manchin for inviting Mountain State Justice 

to testify before you today on behalf of the low-income West Virginians we represent. 

To give you a bit of background, Mountain State Justice is a nonprofit law firm that represents hundreds of consumers in active litigation stemming from predatory mortgage lending. While our 

seven attorneys stay very busy, they’re simply unable to represent 

12 

each West Virginian facing foreclosure, and therefore we rely on 

changes in the law that alter the practices of the mortgage lending 

market to protect consumers. 

In particular, the Dodd-Frank Act prohibits practices that became standard in the mortgage market in the late 1990s that we 

see regularly in our practice. This reform is not only necessary to 

protect West Virginia consumers, but in our opinion, it’s also necessary to level the playing field and to enable community financial 

institutions to keep up with national mortgage lenders. 

I would like to offer three real life examples of the hundreds of 

homeowners Mountain State Justice has seen suffer from similar 

problems. First, Jay and Annette Adame of Cool Ridge, West Virginia, were solicited by a broker to refinance their mortgage. At the 

time they were solicited, Mr. and Mrs. Adame were current on payments for their fixed-rate loan, and therefore initially refused offers 

to refinance. After repeated and aggressive telephone calls, Mrs. 

Adame ultimately agreed to refinance her home loan, relying on 

the broker’s promise of a reduced monthly payment. 

As it turned out, unbeknownst to the Adames, their mortgage 

broker achieved the appearance of a lower monthly payment by 

originating a Pay Option Adjustable Rate Mortgage (ARM). In a 

Pay Option ARM, the initial monthly payment set by the note does 

not cover the amount of interest due, resulting in negative amortization. If the Adames make the initial monthly payment amount 

set by the note, which is the reduced monthly payment they were 

promised, the principal balance on their loan will rise. 

After the unpaid principal balance reaches 115 percent of their 

original principal balance, the monthly payment option is reset and 

results in a new minimum monthly payment well in excess of the 

obligation under their prior financing. Not only are these payments 

unaffordable to the Adames, they are now unable to refinance, as 

their principal balance exceeds the value of their home. Without resorting to litigation, Mr. and Mrs. Adame would have been foreclosed upon simply because they trusted their mortgage broker and 

lender. 

While our reputable community lenders have always considered 

the borrower’s ability to repay, the requirements of Dodd-Frank are 

necessary to hold national lenders to that same standard. 

Next, Luke and Keveney Bair live in Sinks Grove, West Virginia, 

in the home that Luke built on land adjacent to his parents’ farm. 

A mortgage broker and lender obtained an appraisal valuing their 

property at $160,000 when in fact it was only worth $99,000. The 

broker then induced the Bairs to consolidate unsecured debt into 

an adjustable rate loan by promising to refinance them into a lower 

fixed rate after one year. 

In exchange for directing the Bairs to this loan product, their 

broker received a fee of nearly $4,000 and an additional yield 

spread premium of about $2,400. The broker failed to refinance the 

Bairs after the promised one year and the Bairs are unable to refinance because their mortgage loan is in excess of the value of their 

home. 

Not only does Dodd-Frank require that appraisers and lenders 

ensure appraisals are performed fairly and accurately, it prohibits 

the extra kickbacks to mortgage brokers that is the yield spread 

13 

premium. Without the incentive to originate certain high-cost loans 

for particular lenders, community institutions will be better able to 

compete for a larger share of the mortgage lending market. 

Finally, Virginia Richards is an 83 year old widow residing in 

Mammoth, West Virginia. She received a solicitation in the mail informing her that she had been pre-selected to refinance her mobile 

home loan to receive a lower monthly payment. Rather than complete a valuation of her property, the lender used the National 

Automobile Dealers Association book value for her make and model 

and then increased that amount well above book value without considering the specific features of her home. The lender also added 

hundreds of dollars to Mrs. Richards’ actual fixed income in order 

to qualify her for the loan. 

The protections in Dodd-Frank requiring proper valuation and 

assessment of ability to pay are clearly just as important in the 

mobile home industry. The Dodd-Frank Act works to remedy the 

mortgage foreclosure practice resulting from a failure of regulation 

in allowing mortgage loans that were not affordable, not legitimately underwritten, and premised on fraudulent representations 

of value, rates, and promises to refinance. 

By eliminating predatory loans like Pay Option ARM and yield 

spread premiums as well as strengthening requirements for valuation and determination of ability to pay, the Dodd-Frank Act provides essential consumer protection and further benefits community financial institutions. Thank you. 

Chairwoman CAPITO. Thank you. We will now have a round of 

questioning, actually, probably a couple of rounds of questioning. 

I’m going to go ahead and start with my 5 minutes. Aaron has been 

keeping track of my time, so he’ll make sure we stay in line. 

Let’s talk about mortgages, because obviously that influences a 

lot of people, and influences all institutions. Mr. Brewer, do you do 

mortgages at Peoples? 

Mr. BREWER. We do mortgages, but currently most of our mortgages are being sold on the secondary market. The mortgages we 

currently keep are those that, for instance, maybe we’re doing a 

workout for someone or helping someone, but any new purchases 

go to the secondary market. 

Chairwoman CAPITO. And, Mr. Loving, you do mortgages, and 

Mr. Hageboeck, in your testimony you mentioned that you do, also. 

Let’s go to the ability to repay, because I think that’s—we had testimony in front of our committee in Congress from the CFPB which 

is going to set the parameters for the ability to repay. 

Mr. Hageboeck, in terms of your institution, if the standard is 

not set properly, what would that do to your ability, what are you 

going to do, how are you going to react if you’re worried about lawsuits pending? What is your reaction going to be and what would 

the resulting action be for people seeking a mortgage at your institution? 

Mr. HAGEBOECK. The ability to pay—in theory, our bank, and I 

think every bank in the country understands that we don’t want 

to make loans to people who can’t pay them back. When we make 

a loan, we’re looking at the ability to pay interest and principal and 

to pay the principal down over 15 to 30 years pending. So the concept that we need someone to tell us that we have to determine 

14 

whether a customer has the ability to repay seems silly to us. We 

have done that for 100 years as a bank. 

The key to that requirement, because in and of itself the ability 

to repay isn’t going to cause us any harm because we try to do that 

anyway, is that we can be sued, as I understand it, for the life of 

the loan if something goes wrong. If we judge at the time the loan 

is made that the customer has the ability to repay it, and 22 years 

later something happens, and in retrospect it looks like maybe they 

didn’t have the ability, all of a sudden, we have a problem. So we’re 

going to become very, very tight with our lending subject to that 

kind of legal risk. 

And so, Dodd-Frank assumes that there will be something called 

a qualified mortgage, that if you meet certain parameters, then the 

mortgage will be exempt from that legal risk. The concern that we 

have is that the definition of qualified mortgage is going to be too 

narrowly drawn, that many of the loans we make here in West Virginia which we deem to be very safe, that we—in our experience 

we have had very few foreclosures through this most difficult of 

economic times, so our experience will tell us we know what we’re 

doing in underwriting a customer’s ability to repay. 

But we can envision a rule that defines a qualified mortgage in 

such a way that we are unable to make a lot of mortgages that we 

make today and we would cut back our mortgage lending to whatever is deemed to be qualified mortgages. I don’t see us taking a 

legal risk, particularly based here in West Virginia, of making 

loans that would subject us to significant litigation. 

Chairwoman CAPITO. I think just going back to your comment, 

one of the things that came out in testimony that we had in Washington a month ago was that most financial institutions believe 

that if they can’t write a mortgage within the qualified mortgage 

definition, they’re not going to go outside that definition because of 

the risk, and that’s what you’re saying? 

Mr. HAGEBOECK. Exactly. 

Chairwoman CAPITO. Mr. Loving, do you have a comment on 

that? 

Mr. LOVING. Yes. I would agree that having a concern that the 

regulations as crafted, that they will be too narrow and it will force 

a lot of lenders, lenders such as us, out of the marketplace, because 

we have borrowers every day who may meet that qualified residential mortgage definition, and with the assumption that is proposed, 

that revocable assumption that is there, I would much rather have 

an absolute exclusion rather than as Mr. Hageboeck said, 22 years 

later be sitting in a room much like this trying to determine what 

revocable assumption is. I would like to have it confined, because 

there are borrowers who are good borrowers who do not, and I’m 

afraid will not meet the regulations as they will be crafted. 

Chairwoman CAPITO. Thanks. Senator Manchin? 

Senator MANCHIN. Ms. Brown, the examples you gave, were any 

of those loans made by community banks? 

Ms. BROWN. These three were not, Senator. We do have a few 

cases against community banks but it is a fraction of our practice. 

Senator MANCHIN. So the problems you have seen are with the 

large investment banks? 

15 

Ms. BROWN. That’s primarily what we see, and I do think the 

issue of underwriting—community banks have a relationship with 

their customers, they hold loans on their books, they have the proper incentive to properly underwrite a loan, where national lenders, 

at this point, do not. 

Senator MANCHIN. And I would also like to say with Commissioner Cline being here, with West Virginia’s laws, we get very few 

foreclosures from very few bank lenders, so there’s something we’re 

doing right. 

Mr. Wohlever, you said that your business has been harmed severely because of that crash? 

Mr. WOHLEVER. Yes, sir. 

Senator MANCHIN. Strictly because of that, the way the banking 

laws have been changed since the market crash— 

Mr. WOHLEVER. It’s because so many banks have stopped making 

the mobile home loans. 

Senator MANCHIN. And to our three bankers here, when did you 

all have an inkling something was wrong? You all had to see it before, because you’re in that market every day, when you knew that 

the large investment banks were way outside of the comfort zone. 

And I think, Mr. Brewer, you just mentioned that you’re still selling your mortgages? 

Mr. BREWER. That’s correct. 

Senator MANCHIN. To me, if you were keeping those mortgages 

in-house, it would be much more advantageous for me as a borrower from you to have that relationship and you to have that relationship with me, knowing me well enough to want me to succeed. 

Mr. BREWER. And we were up until approximately 2008. 

Senator MANCHIN. So then, the crash basically changed your 

business model for community banks? 

Mr. BREWER. That’s correct, mainly because of the rate environment, and we could not afford to take the interest rate risk, being 

a small institution, to place those homes on a 30-year note on our 

books. 

Senator MANCHIN. To compete with the larger investment banks? 

Mr. BREWER. That’s correct. 

Senator MANCHIN. And what we’re seeing and what we’re reading and what we have been looking at as far as incentive, we’re 

seeing that a lot of the large investment banks are still out there, 

and they’re still making very risky investments. We haven’t seen 

that being reeled in the way that I think we intended for it to be. 

You guys were harmed invariably from the get-go. That’s the hardest thing I’m having to understand right now. How come it didn’t 

protect what we wanted to protect and what we came after—I 

wasn’t there at the time the bill was passed, but yet it changed 

your whole—Skip, I don’t know how it would affect it so quickly in 

your situation, almost overnight as Mr. Wohlever said, in 2008 his 

whole business changed because he couldnt get capital. Is it something, Bill— 

Mr. LOVING. I would say that, if we’re talking in particular about 

mobile homes and modular homes, there were significant changes 

in the underwriting guidelines for mortgages such that in many 

cases, they will not qualify. We are a lender for mobile homes. 

We’ll do mobile home loans both on rented or owned land, singleVerDate Nov 24 2008 17:29 Dec 05, 2012 Jkt 076125 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 K:\DOCS\76125.TXT TERRI
16 

wide or double-wide, but many of the customers, as Mr. Brewer indicated, are looking for long-term fixed-rate mortgages. 

At the attractive rates that we’re seeing today, many of the products that they’re purchasing will not qualify, and so as a result of 

that, the solution is in-house financing, which we love to do, but 

we have a problem, as Mr. Brewer indicated, with an asset liability 

perspective. We cannot do a 6-month CD and a 30-year mortgage 

and offset the two. It just wouldn’t work. And so, we have to look 

at asset liability and customer needs and whether the unit itself 

will qualify. 

Senator MANCHIN. Back to the first question I asked you, I have 

given you a chance to think about that. Did any of you see this 

coming? Did you feel that something was wrong in the banking 

world before we crashed, after Glass-Steagall was done away with 

in 1998–1999? 

Mr. HAGEBOECK. I don’t think I saw things coming any sooner 

than the 2008 as the rest of us watched Barry, Stern and Lehmann 

go under and a variety of large banks. 

Senator MANCHIN. Did you anticipate there would be a problem 

if Glass-Steagall was done when it was repealed back in, what was 

it, 1998–1999? Did you all, and being in your profession, would you 

have anticipated now that’s going to turn the faucet loose on them 

now? 

Mr. HAGEBOECK. No, I don’t think so. That was a fair time ago. 

I think Glass-Steagall allowed, as I recall, commercial banking to 

combine with investment banking, to combine with insurance, and 

I’m not so sure that Glass-Steagall in and of itself was the problem. 

I think the problem was that large banks became larger, and 

then larger yet again, and then larger yet again to the point where 

they run organizations that are so complex that no one sitting at 

the top of that organization can possibly know everything that they 

do, every product they sell, every risk they take, and they try really 

hard to have risk committees and risk teams and they still miss 

stuff, as we have seen recently with JPMorgan Chase, a significant 

loss from something that they didn’t really understand they were 

doing. In community banks, CEOs know what’s going on in their 

organization because we’re just a lot closer to it. 

Senator MANCHIN. Thank you. I’ll save some more for the second 

round. 

Chairwoman CAPITO. Mr. Renacci? 

Mr. RENACCI. Thank you, Madam Chairwoman, and thank you 

all for your testimony. It’s interesting—I was a business person for 

28 years and if you went back over the history of the loans that 

I took out to grow my business and looked at some of those loans, 

you probably today would not be able to do them, and I probably 

would have criticized loans over 28 years, yet I was able to create 

over 1,500 jobs and employ over 3,000 people starting a business 

at the age of 23. So I look at that and say it’s interesting that the 

only jobs that are really being created today appear to be through 

Dodd-Frank. It’s the regulators and it’s your compliance staff at 

your banks. So I guess I would really like to hear from the three 

of you. If your compliance staff is growing, what are some of the 

costs to the customer? I’m trying to get specifics. We hear this so 

much in financial services that we’re throwing compliance at them, 

17 

it’s hurting their ability to provide, and I would like to hear why 

is it hurting their ability to provide? Please give me some specifics. 

What is that compliance staff causing your specific banks to not be 

able to do? 

Mr. HAGEBOECK. In our case, we organize compliance thankfully 

a little differently than most institutions do. Most institutions have 

a compliance staff that really handles all aspects of compliance 

from the very beginning to the very end. We decided years ago not 

to do that and we have 2 people in our organization of 800 who are 

fully devoted to compliance. Their only responsibility is to become 

aware of the laws as they are passed and interpret them and then 

take them to people who work in our organization and communicate with them about what’s expected of them and then to help 

them come into compliance. But we expect our line divisional management to take responsibility and ownership of compliance. 

Mr. RENACCI. What would those two people be doing if they 

weren’t doing compliance? 

Mr. HAGEBOECK. What would those people be doing? 

Mr. RENACCI. Would you have two new people working on loans, 

meeting with customers? I guess what I’m asking is, has there been 

a diversion of two people away from that? 

Mr. HAGEBOECK. That’s a really complicated question. More important than those 2 people are the 20 people I have in the organization who spend some significant part of their day on compliance. 

The head of my mortgage lending division, the head of my consumer lending division; I don’t think they do anything other than 

compliance today. 

These are senior level folks who spend 8 hours a day doing nothing other than implementing regulations, which means they’re not 

focused on how can we make more mortgage loans, how can we be 

more creative in bringing product to the market that will provide 

customers with an opportunity to work with us on the consumer 

side, how can we do a better job with auto lending and home equity 

lending? But those two folks do nothing other than compliance. 

That’s a huge distraction. 

Mr. RENACCI. Mr. Brewer? 

Mr. BREWER. With us, we have 29 full-time employees. We had 

to take one person, one of our officers and put them over compliance where approximately 70 percent of their day has nothing to 

do but with compliance-related issues, whether it’s through regulation interpretation or training employees on the proper way to interpret the regulation or to implement the regulation. This means 

that person’s previous job has to be divided among others or that 

cost that we put into that person is something that we could be 

putting into other services. That was that person’s, part of that individual’s job previously was to investigate and to research new 

products and services that we may offer our members. Now we’re 

not even looking at new services. Not only do we have not anyone 

to look in that direction but the amount of regulation or proposed 

regulation, you don’t know what the effect would be and what the 

true cost may be to you for a service like that. 

Mr. RENACCI. Mr. Loving? 

Mr. LOVING. In our institution, we have 78 employees. We have 

one full-time compliance officer, and we just recently went to a 

18 

compliance committee. And the purpose for that is to have more 

people involved in the compliance process, particularly as we see 

Dodd-Frank and some of the other new regulations starting to unfold. We need to make sure there’s more than one person involved 

in adhering to the compliance or the new compliance rules that are 

coming out. 

A small issue, you asked about the specific cost, as I said in my 

testimony, every dollar we spend in compliance in any way is a dollar that we are not investing in our community. But each year, as 

part of DSA and other regulations, we have a separate audit that 

is performed by an outside auditor that we pay for. We just recently had to have a RESPA audit done that was $5,000. And so 

it’s a dollar here and a dollar there and it does add up to a considerable investment in compliance over the long haul. 

Mr. RENACCI. Thank you. My time is up. 

Chairwoman CAPITO. I’m going to start again. Ms. Brown, on the 

three examples that you mentioned, I think the SAFE Act that we 

passed in a bipartisan way would help a lot with the licensing requirements and that’s why we have seen a lot of these kind of flyby-night brokers that vaporized on the national scene. Would you 

agree that has helped that situation, to your knowledge? 

Ms. BROWN. I’m sure that has helped. I think that elimination 

of the yield spread premium is also key in changing incentives. 

Chairwoman CAPITO. There’s a big push back on that and so I 

think that is yet to be determined on how that’s going to push back 

on the industry absent—not necessarily Members of Congress. The 

other thing I think that I want people to know that we addressed 

is this appraisal issue. As you looked across the country, you saw 

it, and I’m sure the three of you sitting there cannot imagine that 

you would go back to your appraiser and say, I need another 

$150,000 on this property, and $50,000 on this property in order 

for me to make this loan, and that’s occurring particularly on the 

coast, most notably in California, Nevada, and led to some real terrible abuse of people, and people were throwing in cars and all 

other kinds of debt that they had to try to meet these challenges. 

So I hope that not only some of the SAFE Act has covered that, 

that we passed previously. And so I think some of the samples like 

Sarah mentioned, pointed out that community bankers are not the 

ones making these phone calls in the middle of the night or in the 

middle of the day to vulnerable consumers. 

I want to ask Mr. Hageboeck, you mentioned derivatives. This is 

a complicated topic, but I want to get it on the record again, because as you know, there is legislation out there that is being complicated not only by the influence of financial institutions but also 

agri-business, the power industry who try to hedge their investments when they’re trying to figure out how to afford whatever fuel 

they’re using. You mentioned in your testimony that you use derivatives in a small way to hedge and you don’t believe that the 

new legislation is going to disallow that. What kind of influence is 

that going to have? How many customers do you really do this for? 

Is it a lot? I just have no idea. 

Mr. HAGEBOECK. Sure. It actually is a fair number. The problem 

for us is the same one Bill talked about, that our deposits are all 

fairly short term, so we need to match them up against loans that 

19 

are fairly short term. With interest rates being as low as they are, 

most customers quite wisely would like to lock in a very long-term 

fixed-rate level, which we can’t do, and I’m talking mainly about 

commercial customers rather than mortgages, which can be sold in 

the secondary market. 

So what we’re able to do is add a derivative on top of that fixedrate loan for the customer that converts it into a short-term or 

variable rate loan to us. So we get what we need, variable rate 

loans to match up against our variable rate deposits. They get 

what they need, which is a long-term fixed-rate loan. It’s a wonderful solution to the problem, but now that customer, our small business that maybe is borrowing $3 million to finance their building 

and they want it for 20 years, they need to pass, or we think 

they’re going to need to pass a test to be a qualified participant, 

I think was the phrase, and they’re not going to qualify, because 

the law was designed not to deal with this customer but to deal 

with much more sophisticated folks but they’re going to come under 

it and they’re not going to qualify, and so they’re not going to be 

able to get that product from us. 

So it’s going to change the landscape for them so they’re either 

going to get it from somebody who ignores the regulation and goes 

ahead and makes it anyway, or they’re going to get it from a large 

bank that has capital markets operation that can affect the same 

transaction through their own huge balance sheet. 

Chairwoman CAPITO. So again, we’re pushing business out of the 

community bank into the big four, I think you both mentioned in 

your testimony that the big four has what, like 43 percent of the 

business— 

Mr. HAGEBOECK. The top 10 has 72 percent of the banking. 

Chairwoman CAPITO. The top 10 has 72 percent of the banking, 

but in a State like West Virginia, I think it could be really devastating. 

Mr. HAGEBOECK. Absolutely. 

Chairwoman CAPITO. I appreciate that, because that really shows 

again that a one-size-fits-all regulation is not appropriate in this 

arena, and then I’ll give you a chance to talk again about Basel III 

because—oh, I know what I wanted to ask you. Who regulates you 

on that derivative portion? Is that the FDIC that oversees that or 

is it just—the FDIC is your primary regulator, correct? 

Mr. HAGEBOECK. The OCC for City National Bank. 

Chairwoman CAPITO. The OCC. Okay. So the OCC would oversee 

your derivatives and your—whether that person is qualified to be 

a participant or not as part of the overall examination? 

Mr. HAGEBOECK. I’m not sure whether or not there would be a 

regulator for that. 

Chairwoman CAPITO. I think that’s the question, because you 

have all sorts of regulatory participation in a lot of different ways. 

What other regulators do you have in your bank? Do you have any 

SEC? 

Mr. HAGEBOECK. The SEC would regulate the holding company. 

The Federal Reserve would regulate the holding company. Of 

course, the FDIC is interested in every bank that they insure but 

we don’t see them very often. We hear from them on the phone 

once in a while. 

20 

Chairwoman CAPITO. Have you ever had the CFPB in your office 

in your bank? 

Mr. HAGEBOECK. No, we have not. 

Chairwoman CAPITO. Have you? 

Mr. LOVING. We have not. 

Chairwoman CAPITO. Have you? 

Mr. BREWER. No. 

Chairwoman CAPITO. Okay. Senator Manchin? 

Senator MANCHIN. Ms. Brown, back to you again. Do you believe 

that relief is needed as you’re hearing from the businesses and also 

from community bankers, help is needed for community banks? 

Ms. BROWN. In terms of their regulation? 

Senator MANCHIN. Yes. 

Ms. BROWN. I wouldn’t feel comfortable speaking to that. I certainly respect their testimony here today and understand their concerns, but— 

Senator MANCHIN. A group like yourself, that is working with the 

nonprofits and this and that, it carries a lot of weight and it’s very 

helpful if we’re all moving in the same direction. I understand that 

we basically stymied the small community banks, the investments 

and the capital that we need to grow, so I’m hoping that you all 

will take a position on that. 

Ms. BROWN. From our perspective, we prefer our local West Virginians to be able to work with these community lenders who do 

understand their specific needs, who are invested in their longterm well-being and commitment to homeownership. We do see a 

lot of what happened in the national mortgage market as a real 

threat and in a sense competition to our community banks and feel 

that along with the protection, Dodd-Frank does level the playing 

field and take away a lot of the incentive and misrepresentation 

that West Virginians really experienced from some of these national lenders. With those incentives taken away and the protections for national lenders almost, I think community banks would 

be better able to compete for the mortgage market for West Virginians. 

Senator MANCHIN. Thank you. Bill, if I could start with you, 

what do you think would be the thing that we could do that would 

help the most? If there’s going to be one thing we can come together on in Washington, which I still think it is possible we can, 

what do you think that should be? 

Mr. LOVING. I think for the regulation, we cannot have a onesize-fits-all regulation. I think we have to understand the community bank and credit union model, I’ll include them in this, is different than the too-big-to-fail model, and we have to have regulation that allows us to compete, provide products that our customers 

want and need and is vital to our communities, and we continue 

to do so in the same fashion that we have done for many, many 

years, and that’s having our interest and our customers’ interest 

and our community’s interest at heart. That’s what community 

bankers are. 

Senator MANCHIN. Tom, we skipped you, I think. 

Mr. BREWER. I agree. I think we can’t let some unscrupulous 

lenders brought on Dodd-Frank and now placed us in a position 

21 

that we’re looked at the same as these large financial institutions 

and we can’t compete in that environment. 

Senator MANCHIN. Is there one thing that’s really strangling you 

right now, is what I’m looking for. We’re introducing legislation in 

a bipartisan manner here, trying to find the relief that you need 

and we’re trying to get everybody to buy into this, but we need to 

have that. 

Mr. HAGEBOECK. If it were Christmas in August, the big present 

I would ask for, which is probably undoable, is to do away with 

Dodd-Frank entirely. From my perspective, it serves no useful purpose, although I can understand that for some large mortgage brokers, there were a lot of problems going on. 

Senator MANCHIN. From the investment bank, you think just go 

back to where we were? 

Mr. HAGEBOECK. From my perspective, Dodd-Frank is a harm 

and not a help. That would be my—if I had to narrow it down to 

something smaller and more doable— 

Senator MANCHIN. Sure. 

Mr. HAGEBOECK. —it would be the Basel III capital, which has 

not yet been promoted against us, which I think is going to be terribly detrimental. 

Senator MANCHIN. Which one is that? 

Mr. HAGEBOECK. Basel III capital growth. I think if we narrowed 

it down to one specific piece that would be the most potentially 

damaging— 

Senator MANCHIN. You consider that a football that could cause 

you more real problems than you have right now? 

Mr. HAGEBOECK. Yes. 

Senator MANCHIN. Mr. Wohlever, how long can businesses like 

you—I don’t know who’s suffering the most. I know that your type 

of business seems to be suffering. You got the brunt of it, right, 

from the get-go? 

Mr. WOHLEVER. I believe so, Senator. 

Senator MANCHIN. Okay. And are there other businesses, did any 

other businesses prosper at all through this whole Dodd-Frank fiasco, if you will? Are there any of them, if you know of anybody 

who has been able to find capital in other types of businesses? I’m 

sure you’re looking around a little bit trying to figure out which direction to go. 

Mr. WOHLEVER. Yes, I’m pretty well-connected in Martinsburg 

and most of the owners in Rotary are all kind of in the same boat. 

Senator MANCHIN. Everybody’s hurting. 

Mr. LOVING. The one thing I would say is I would agree with Mr. 

Hageboeck about Basel III, but I would like to keep in mind if we 

look into Dodd-Frank, there are some good components of DoddFrank for community banks, primarily the increase in the $250,000 

coverage for community banks, allowing us to compete against the 

too-big-to-fail and believe me back in 2008 and 2009, that was significant if that additional coverage was important. So we need to 

keep that in mind, and we also need to keep in mind that coverage 

is now paid fairly and has saved our institution about $130,000 a 

year of FDIC insurance because of the change in the assessment 

base. So there are some good things that are included in there that 

are a benefit to community banks, I’m sure. 

22 

Senator MANCHIN. Thank you. 

Mr. RENACCI. Ms. Brown, I was reading your testimony here and 

you say that I urge members of the subcommittee not to support 

repeal of any aspect of the Dodd-Frank Act and its consumer protections. So you’re putting a broad brush on that, saying anything 

at all should not be repealed? 

Ms. BROWN. I am, but I would first like to say the experience of 

my practice is I do all litigation and I have consumers in my office 

who have mortgage loans primarily that were originated before 

2009. By the time they reach my office and we’re engaging in litigation, I’m not seeing mortgage loans that have been originated 

after Dodd-Frank. Certainly, many of its provisions have not been 

enacted. So I don’t want to speak too broadly, but I am anxious for 

a chance to see the implication of Dodd-Frank on the mortgage 

market the way the expenses are shifted and what impact that will 

have on mortgage lending. 

Mr. RENACCI. Do you believe in any way that if we had better 

oversight from the standpoint if the regulators really had done all 

their job, that maybe some of these things would not have occurred 

in some instances you brought up? 

Ms. BROWN. I think the problem arose from a lack of enforcement 

of regulation and also lack of existence of certain regulation. I 

think Dodd-Frank has for the first time brought to the regulatory 

arena protections that were not previously available. 

Mr. RENACCI. So like the Senator was trying to bring up here, 

and you just said it again, there are some enforcement actions that 

weren’t done and then there are some good things with DoddFrank. The problem is the broad brush of all Dodd-Frank I think 

is causing some problems, which is a little what we’re hearing over 

on this side. One of the other comments you made was an inference 

in your statement that Dodd-Frank might actually help level the 

playing field for community institutions. I would like to hear your 

thoughts. Do you believe Dodd-Frank will benefit your institutions? 

Mr. BREWER. I think there are aspects of it that could possibly, 

yes, but I think it places us in a position of operating our institutions to please the regulator versus to return to our member services and products. In that respect, there are just some issues with 

part of the bill. 

Mr. LOVING. I would agree there are some issues that would level 

the playing field, but many create much concern. You mentioned 

CFPB and the process that—I guess in order now for them to write 

rules and regulation, and I think if I’m not correct, they are the 

only agency that has one director of a board and so you have literally one person writing consumer financial protection legislation 

that albeit well-intended, I think there are a lot of unintended consequences that will happen such as with the qualified mortgage 

and there’s—they did make a change just recently in proposed legislation that I think will be beneficial, but there are a lot of unknowns out there for the CFPB that concerns me as well as some 

of the other regulations. I don’t think that in itself will level the 

playing field. I think there will be a detriment to the small community banks. 

Mr. HAGEBOECK. There were some bad actors out there doing 

things they shouldn’t have been doing, but by removing them, does 

23 

that improve the playing field for us? I don’t think so, because we 

weren’t playing with those customers anyway. The three examples 

we heard were all cases where the customer didn’t really need the 

services of the bank. They had something pressed upon them, so 

there was nothing there that we would have been a participant in, 

so I don’t— getting rid of the bad actors, that’s desirable but it 

doesn’t help us. 

Mr. RENACCI. Let’s talk a little bit about jobs and job creation, 

because I think that’s really the key to getting our country moving, 

getting our economy moving again. Do you have any thoughts on 

how Dodd-Frank and the overregulation are hurting the job creators? Can you give me some examples of job creators who come 

to your institutions? That’s really where the job creations come 

from, those entrepreneurs out there who are walking in your door 

and saying, I need capital. Mr. Brewer, you said that there were 

actually some—demand was up. Mr. Hageboeck, you said demand 

was down. So what’s the truth, and also I would kind of like to 

bring it together in one conclusion. 

Mr. BREWER. Our demand is up for the automobile or small dollar loans, not mortgage lending, and we are not a commercial lender, so any commercial line we would do would be less than $50,000. 

That’s all we, through regulation, are allowed to perform. Now, 

something that could help small business would be the passage of 

H.R. 1418, which would help just raise the business cap on credit 

unions. 

Mr. RENACCI. If demand is down, I’m not sure if raising the 

cap— 

Mr. BREWER. We have some credit unions that do the commercial 

lending in West Virginia that are at their cap and cannot take on 

more business lending. 

Mr. RENACCI. Is demand up or demand down? I always like to 

hear that when I go to a new State. 

Mr. LOVING. In our case, demand is down. Our loan demand 

across-the-board is down. We have four offices in West Virginia, 

rural communities, one in Virginia, and in all offices demand is 

down, both from a commercial perspective as well as a residential 

perspective. 

Mr. HAGEBOECK. When I said demand was down, I was specifically talking about 2012, but we have seen the demand for credit 

decelerating since the beginning of the year. Credit is stronger certainly than it was at the debt recession in late 2008, 2009, but the 

trends I think are negative and I particularly focus on commercial 

and residential mortgage. 

Chairwoman CAPITO. Any other questions? With that, I think I 

will thank our witnesses. We have gotten a lot of really good information, bringing it down to the street in West Virginia, so to 

speak. There are other issues that we’re hearing about quite a 

bit—acquisitions and mergers, banks are saying we’re going to 

have to be acquired because we can’t survive in this environment. 

We’re going to have more consolidation, and is that a good thing? 

Personally, I don’t believe it is a good thing, and I’m worried 

about that for our customers, for our consumers and for the folks 

that you represent. I also worry about the folks that you’re representing because I worry if we do something like really squeeze 

24 

down on the definition of a qualified mortgage where City National 

is hard pressed to write their mortgage outside of the parameters 

of that, that’s going to hurt the customer that you serve the most, 

the lower-income folks or the lower and middle income, who are on 

the edge a lot of times anyway and they need to have the flexibility 

that they have been able to offer and Mr. Wohlever needs some 

flexibility when people are looking at the definition of what he’s 

trying to do in his business. I don’t want to wake up 4 years from 

now and find out that we have disenfranchised the folks that we 

have been most trying to protect, and this concerns me. We certainly are trying to protect the general public from the unscrupulous behavior that we saw and that you documented and that we 

know was going on, but we certainly don’t want to cause those families who are trying so hard to get a little bit ahead to not be able 

to get that one peg in the wall that’s going to pull them up a little 

bit further in terms of financing or risk-taking. Senator Manchin, 

did you have a comment? 

Senator MANCHIN. I just thought of something. I would like to 

get very quickly your opinions on this, but knowing that the financial cliff, and it’s not just a saying, it’s for real, that we’re facing 

and we’re all going to have to be facing here after the November 

6th election, because I truly don’t believe anything will happen before that, but with that election coming, we’re facing the tax 

changes as far as the Bush tax credits going off, we’re facing also 

the sequestering, which was the mandatory cuts, and the uncertainty. We hear so much money being still on the sidelines. How 

much would you attribute with the uncertainty or the lack of confidence that we can fix the large financial problems that are causing the problem for the market for the downturn. Just very quickly 

from all aspects. 

Mr. HAGEBOECK. Senator Manchin, I think that’s 100 percent of 

the problem. As you know, I’m a trained economist. I have a Ph.D. 

in economics from Indiana University in economics and psychology, 

and the business— 

Senator MANCHIN. You hear from your customers? 

Mr. HAGEBOECK. —just don’t know about all those things that 

they mention. They’re not going to go out and borrow money even 

though they may think there’s an opportunity because there just is 

too much risk around investment today, and they’re not going to 

borrow the money until they feel more certainty. 

Senator MANCHIN. Tom? 

Mr. BREWER. I agree. We hear our members talking about the 

uncertainty, not only here in the United States. They’re concerned 

because of the global effect you hear of the markets in Europe and 

then locally layoffs and downsizing. So yes, the uncertainty is the 

big issue. 

Senator MANCHIN. You have a lot of customers. Are they talking 

about, are they concerned about the financial condition of this Nation right now? 

Mr. BREWER. Yes. 

Senator MANCHIN. So you all hear it. Bill? 

Mr. LOVING. Yes, I would agree. I think uncertainty is a significant element in our economy today. No one can predict, can make 

25 

an investment without knowing what the impact is going to be next 

year. So I think yes, it’s a big issue. 

Senator MANCHIN. If people have money, they’re sitting on it, 

right? 

Mr. LOVING. They’re sitting on it, they’re not investing, yes. 

Senator MANCHIN. And they’re not coming to you all trying to leverage their own money by borrowing money or anything, so that 

interest is down for that reason? 

Mr. LOVING. Correct. 

Mr. WOHLEVER. Senator Manchin, I think that’s an excellent observation. While that is kind of a simple question, it’s very complex. There’s so many elements that go into it and when you add 

up all these different areas of uncertainty, I do think we have just 

an enormous amount of people who are just waiting to see what’s 

going to happen. 

Ms. BROWN. Again, in my practice, I see homeowners currently 

in a mortgage and facing a lot of economic uncertainty in terms of 

how they’re going to make each month’s bills meet, so there’s quite 

a bit of concern about the economic impact and the impact on their 

family monthly budget, and certainly there’s some concern about 

the national budget as well. But in terms of whether they’re going 

out to refinance or get other loans, at this point I see homeowners 

again trying to figure out this month’s bills. 

Chairwoman CAPITO. I think that I will call the meeting to a 

close. 

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 30 days 

for Members to submit written questions to these witnesses and to 

place their responses in the record. 

With that, this hearing is adjourned. I would like to thank everyone for your participation. I think we have gotten a lot of very valuable information. 

[Whereupon, at 12:25 p.m., the hearing was adjourned.] 

(27) 

A P P E N D I X 

August 20, 2012 

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