2019 Journal of Community Bank Case Studies

University of Tennessee at Martin

THIRD PLACE:

financial institutions to “publicly disclose loan-level information about mortgages” (“About HMDA”). This maintenance and reporting of mortgage data force community banks to contribute countless hours and large amounts of capital to HMDA compliance. For FirstBank, the cost of complying with mortgage-lending regulations, including HMDA, totals approximately $5.7 million per year, which is approximately 36% of the bank’s total compliance costs (Durham). This total continues to increase due to additional regulatory requirements. Backlash from the 2007—2008 financial crisis caused a hefty number of regulations to be imposed on all banks, regardless of their size and capital. In 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Act (Dodd-Frank Act) which imposed capital, liquidity, and testing requirements as well as lending and investing restrictions on the banking industry (Ruth). The Dodd-Frank Act, though filled with good intentions, is complex, costly, and provided little guidance on how to comply (Buttrey). FirstBank experienced an increased burden from the Dodd-Frank Act’s financial reporting requirements in a number of areas although its assets total less than $10 billion. To satisfy all reporting requirements, FirstBank spends approximately $2 million per year, or 13% of its total compliance costs (Durham). The TILA-RESPA Integrated Disclosure Rule (TRID), which combined various “disclosures that consumers receive in connection with applying for and closing on a mortgage loan

Community banks are at a disadvantage in terms of compliance requirements.

under the Truth in Lending Act and the Real Estate Settlement Procedures Act” into one rule, is a specific regulation within the Dodd- Frank Act that is burdensome to FirstBank (“Integrated Mortgage Disclosure”). Similar to HMDA, TRID requires ample paperwork and labor hours. During an interview in Paris, Troy Buttrey explained that the mortgage lending process went from approximately a week to almost 40 days to close after the implementation of TRID (Buttrey). B. FirstBank’s Dedication to Compliance Community banks are at a disadvantage in terms of compliance requirements. The costs of compliance affect community banks more on a relative basis because they have limited staff and/or excess funding to contribute into regulation compliance. A Federal Reserve study estimates that compliance cost represents 9% of the workforce in a community bank that has assets between $1 billion and $10 billion (Fuchs). Despite the cost of regulatory compliance, CEO Chris Holmes states, “Compliance is not optional; it is a cost of doing business.”

59