2019 Journal of Community Bank Case Studies

2019 COMMUNITY BANK CASE STUDY COMPETITION

meet the more stringent criteria set out by the larger banks. Ms. Weikel estimates that in 2008, the cost associated with originating a mortgage was approximately $300. The passage of Dodd- Frank and other initiatives emanating from it, such as increased requirements under Home Mortgage Disclosure Adjustment (HMDA), resulted in an almost three-fold increase in origination costs. As this cost is passed on to the customer, it was a very significant rise, specifically for those purchasing homes in Kish’s rural communities where home values are under $100,000 (compared to larger markets where average home values are over $300,000). These burdens also lead to an uneven playing field in the banking sector where efficiencies cannot be achieved by smaller banks. Not only did the cost of originating mortgages increase, but the time required to originate mortgage loans and complete associated underwriting, disclosure, and documentation more than doubled. This was due to a number of factors: the Truth in Lending Act relating to a customer’s ability to pay (ATP); the replacement of the ‘HUD’ statement, previously completed by loan settlement attorneys, with a closing statement completed by the bank; and the collection of additional data points from customers before loans could be originated. With respect to the data points required under HMDA, this went from 26 data fields, which equated to an approximate cost of $15,000 per year, to over 100 fields where the cost is close to $50,000 per year. The introduction of more fields also increased the probability

As a community bank, Kish emphasizes lending

to individuals and small businesses.

importantly, costs for Kish’s customers. These increased costs made it more difficult for Kish to compete with larger banks for ‘typical’ customers because Kish could not benefit from the economies of scale that applied to the larger banks. Thus, Kish’s size was a factor in this regard. This section looks at Dodd-Frank at a micro level by concentrating on some of the more onerous requirements imposed on Kish through an overview of its impact from management’s perspective. Mortgage Loan Origination As a community bank, Kish emphasizes lending to individuals and small businesses. This is evident from the breakdown of its loan portfolio as is the fact that it specializes in originating residential mortgage loans, some of which it keeps on its balance sheet, while others are sold to the secondary mortgage market. Furthermore, as Ms. Debra Weikel, Sr. VP, Retail Credit Officer explains, detailed knowledge of Kish’s communities, its immediate economic environment and its customers allows it to provide funds to customers who would not

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