2019 Journal of Community Bank Case Studies

Juniata College

FIRST PLACE:

in the first and third quarter of each year as Kish’s assets are under the $5 billion threshold stipulated for this provision. Kish can take advantage of this by eliminating some of the forms and schedules heretofore required. This means Kish will save money, which it estimates at $500-$1,000 per quarter, as it will take less time for Kish personnel to complete the short form call report for each of these two quarters. Qualified Mortgages Under EGRRCPA, a new qualified mortgage (QM) compliance option is available for mortgages which Kish originates, as it falls under the stipulated $10 billion in assets limit. Under the ATR provisions imposed by Dodd- Frank, Kish is required to verify and document that a borrower has the ability to repay their mortgage, at the time it is taken out. Failure to comply with the ATR provisions normally leaves the bank open to legal liability. However, under the new QM option, if Kish considers and documents a borrower’s debts, incomes, and other financial resources, it minimizes the legal risk involved in residential mortgage lending activities (CRS). One of the other conditions which must be met to avail of this new option is that Kish must retain the mortgage in its portfolio for the duration of the mortgage. It is envisaged that the expansion of the QM definition will reduce the burden on Kish with respect to underwriting requirements. This may expand its customer base to include atypical borrowers who would not have met the previous more exacting underwriting requirements but are otherwise creditworthy. Thus, while it will be in Kish’s best interests to

ensure that the underwriting is thorough (given that it must retain the mortgage in its portfolio and would therefore suffer the loss in the event of default) some benefits may ensue from this provision: a lowering of potential legal risk going forward and an ability to serve atypical borrowers. Other EGRRCPA Provisions There are a number of EGRRCPA provisions which did not impact Kish. These include the rollback of the Volker Rule, the extension of the exam cycle to 18 months and the HMDA rollback. With respect to the former, Kish had divested itself of assets which would have fallen within the realm of the Volker Rule approximately 3 years ago. As regards the exam cycle, Kish was already on an 18-month exam cycle prior to the enactment of EGRRCPA and thus there was no change for the bank. However, had EGRRCPA not increased the asset threshold for the 18-month exam cycle from $1 billion to $3 billion, Kish would have had a shorter exam cycle once it breached

There are a number of EGRRCPA provisions which did not impact Kish.

21