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Welcome toICBA Community Bank Day

Made possible by our generous sponsors

Federal Legislative Issues

Renee RappaportICBA Vice President,

Congressional Relations

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113th CONGRESS

Gridlock in WashingtonNotwithstanding, ICBA has won several important victories including:• Flood insurance bill• Farm bill• Municipal advisor registration requirements• Volcker rule—CDO TruPS

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FOCUS ON FOUR AREAS

• Regulatory reform• QM rule• Housing finance reform (Fannie Mae/Freddie Mac)• ICBPAC

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REGULATORY REFORM• ICBA’s Plan for Prosperity (PFP)/ Jan. 2, 2013• Streamlined version of the old Communities First Act• Represents “Dirty Dozen” of most troublesome regulatory burdens• Often it is easier to move smaller bills through the legislative process

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PFP PROVISIONS• Exempt community banks from certain mortgage reforms (portfolio loans)*• Eliminate annual privacy notices• Reform governance of CFPB• Exemption from municipal advisor registration• Improve accountability for bank examiners with a workable appeals process• Small BHC Act Policy Statement *

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PFP/CONTINUED• SOX 404 reform: relief from audit expenses for publicly traded community banks*• Voice for community banks: Asst. Secretary at Treasury for Community Banks• National charter option for mutual banks• Relief from escrow*• Eliminate small business data collection• Tax reforms for Subchapter S banks

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LEGISLATIVE ACTIVITY ON REGULATORY RELIEF

• To date, 23 separate bills introduced in both House and Senate which contain PFP provisions • CLEAR Act: HR 1750/S 1349 contain most provisions and have most co-sponsors

QM RULE

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Problem areas include:

• First, “small creditor” definition for QM purposes is too narrowly drafted: banks originating fewer than 500 first lien loans each year and are under $2B assets.• ICBA to CFPB: either expand threshold to 1000 loans, or exclude loans held in portfolio.

QM RULE

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• Second, QM definition does not include balloon loans unless bank meets small creditor definition for two years (expires 1/16). Starting in 2016, balloons must be originated in “rural” areas to be considered QM.• ICBA to CFPB: either treat all balloons as QM if held in portfolio, or expand definition of “rural.”

HOUSING FINANCE REFORM

• Fannie Mae & Freddie Mac paid $200B to U.S. Treasury in conservatorship, reducing federal deficit

• Reformers on Capitol Hill fearful this will harm efforts to create a new secondary market system

• Some holders of GSE preferred and common stock have filed lawsuits challenging the sweep of GSE earnings into the U.S. Treasury

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CONGRESSIONAL RESPONSE-SENATE• Johnson-Crapo bi-partisan legislation, some 450

pages Highlights: • Creates new entity, Federal Mortgage Insurance

Corp. (FMIC) – modeled after the FDIC• FMIC will provide federal govt. guarantee to MBSs

issues by approved entities

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CONGRESSIONAL RESPONSE SENATE CONT.

• Approved entities will provide 10% credit support to absorb first losses in front of govt. guarantee

• FMIC would approve guarantors, aggregators and servicers. All existing GSE servicers are grandfathered and approved.

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CONGRESSIONAL REPSONSE – SENATE CONT.

• FMIC will set underwriting standards for loans securitized with FMIC guarantee.

• FMIC will charge fees to build up its insurance fund

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SMALL LENDER MUTUAL• FMIC will create small lender mutual• Owned/managed by its members on a cooperative basis.• Small Lender Mutual will aggregate loans from community

banks, credit unions, mortgage bankers, FHLBs, HFAs • Mutual will securitize loans, pay the lender in cash and permit

the lender to service the loan• This essentially remains the same as the GSE cash window• Eligibility: depositories with assets < $500B; non-depositories

with net worth> $2.5M; FHLBsICBA Community Bank Day sponsored by:

GSE WIND DOWN

• Fannie Mae and Freddie Mac are wound down over 5 years. Can be extended in 2 year increments several times, up to 10 years

• No provision for junior preferred or common shareholders to be repaid

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ICBA CONCERNS• Vertical Integration: a guarantor can be owned by an

aggregator, or originator. This would let the largest financial firms completely control the secondary mortgage market.

• Upfront Capital Markets Transactions: the large originators and aggregators will use UCMTs to provide a cheaper path to obtain the 10% first loss protection; this would render the Small Lender Mutual uncompetitive, and would again drive consolidation with the largest lenders.

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ICBA CONCERNS CONT.

• Additional regulatory authority: FMIC has authority to write mortgage rules that could impact community banks

• Governance of mutual: No requirement for small bank representation on board

• Application of QM standard: only QM loans would be eligible for purchase by the mutual

• Junior preferred shares: no recourse

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SENATE BANKING COMMITTEE CONSIDERATION

• Chairman and Ranking Member started markup on April 29 with opening statements

• Will restart subject to the call of the chair• Still working with Senators to add provisions

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HOUSE ACTION

• FSC Chairman Hensarling introduced PATH Act• Phases out F/F over 5 years• Securitization platform controlled by a private

sector entity. No federal govt. guarantee• FHLBs authorized, but not required to,

aggregate community bank loansICBA Community Bank Day sponsored by:

HOUSE ACTION CONT.

• PATH passed out of committee without any Democrats voting for it

• Realtors and Home Builders expressed strong opposition (lack of govt. guarantee)

• No House passage b/c it lacks enough votes

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PROGNOSIS FOR GSE REFORM?

• Most likely, no bill this year• Johnson-Crapo, which has bi-partisan support,

may serve as starting point next Congress• Question: will any of these proposals actually

work for community banks in real world marketplace??

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Advocacy in Action• Over 3,000 supporters

in 2013 contributing over $870,000

• Plus $150,000 in corporate sponsorships in 2013

• Contributed $1.7 million for the 2012 elections

• Supported 240 candidates for Congress

ICBPAC

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Advocacy

Grassroots Lobbying• Only federal PAC exclusively dedicated to protecting & promoting the

community banking industry• Supports candidates of both parties who understand community

banking

ICBPAC

• 2013 Contributions Ohio: $20,700

• 2014 Cycle Disbursements to Candidates Ohio: $75,700

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