[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]





                           THE STATE OF BANK
                          LENDING IN AMERICA

=======================================================================

                                HEARING

                               BEFORE THE

                 SUBCOMMITTEE ON FINANCIAL INSTITUTIONS
                          AND CONSUMER CREDIT

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 28, 2017

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 115-11
                           
                           
       
       
       
       
       
       [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

       
       
       
       
       
                           
 
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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    JEB HENSARLING, Texas, Chairman

PATRICK T. McHENRY, North Carolina,  MAXINE WATERS, California, Ranking 
    Vice Chairman                        Member
PETER T. KING, New York              CAROLYN B. MALONEY, New York
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma             BRAD SHERMAN, California
STEVAN PEARCE, New Mexico            GREGORY W. MEEKS, New York
BILL POSEY, Florida                  MICHAEL E. CAPUANO, Massachusetts
BLAINE LUETKEMEYER, Missouri         WM. LACY CLAY, Missouri
BILL HUIZENGA, Michigan              STEPHEN F. LYNCH, Massachusetts
SEAN P. DUFFY, Wisconsin             DAVID SCOTT, Georgia
STEVE STIVERS, Ohio                  AL GREEN, Texas
RANDY HULTGREN, Illinois             EMANUEL CLEAVER, Missouri
DENNIS A. ROSS, Florida              GWEN MOORE, Wisconsin
ROBERT PITTENGER, North Carolina     KEITH ELLISON, Minnesota
ANN WAGNER, Missouri                 ED PERLMUTTER, Colorado
ANDY BARR, Kentucky                  JAMES A. HIMES, Connecticut
KEITH J. ROTHFUS, Pennsylvania       BILL FOSTER, Illinois
LUKE MESSER, Indiana                 DANIEL T. KILDEE, Michigan
SCOTT TIPTON, Colorado               JOHN K. DELANEY, Maryland
ROGER WILLIAMS, Texas                KYRSTEN SINEMA, Arizona
BRUCE POLIQUIN, Maine                JOYCE BEATTY, Ohio
MIA LOVE, Utah                       DENNY HECK, Washington
FRENCH HILL, Arkansas                JUAN VARGAS, California
TOM EMMER, Minnesota                 JOSH GOTTHEIMER, New Jersey
LEE M. ZELDIN, New York              VICENTE GONZALEZ, Texas
DAVID A. TROTT, Michigan             CHARLIE CRIST, Florida
BARRY LOUDERMILK, Georgia            RUBEN KIHUEN, Nevada
ALEXANDER X. MOONEY, West Virginia
THOMAS MacARTHUR, New Jersey
WARREN DAVIDSON, Ohio
TED BUDD, North Carolina
DAVID KUSTOFF, Tennessee
CLAUDIA TENNEY, New York
TREY HOLLINGSWORTH, Indiana

                  Kirsten Sutton Mork, Staff Director
       Subcommittee on Financial Institutions and Consumer Credit

                 BLAINE LUETKEMEYER, Missouri, Chairman

KEITH J. ROTHFUS, Pennsylvania,      WM. LACY CLAY, Missouri, Ranking 
    Vice Chairman                        Member
EDWARD R. ROYCE, California          CAROLYN B. MALONEY, New York
FRANK D. LUCAS, Oklahoma             GREGORY W. MEEKS, New York
BILL POSEY, Florida                  DAVID SCOTT, Georgia
DENNIS A. ROSS, Florida              NYDIA M. VELAZQUEZ, New York
ROBERT PITTENGER, North Carolina     AL GREEN, Texas
ANDY BARR, Kentucky                  KEITH ELLISON, Minnesota
SCOTT TIPTON, Colorado               MICHAEL E. CAPUANO, Massachusetts
ROGER WILLIAMS, Texas                DENNY HECK, Washington
MIA LOVE, Utah                       GWEN MOORE, Wisconsin
DAVID A. TROTT, Michigan             CHARLIE CRIST, Florida
BARRY LOUDERMILK, Georgia
DAVID KUSTOFF, Tennessee
CLAUDIA TENNEY, New York





























                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    March 28, 2017...............................................     1
Appendix:
    March 28, 2017...............................................    39

                               WITNESSES
                        Tuesday, March 28, 2017

Calhoun, Michael D., President, Center for Responsible Lending...     9
Heitkamp, R. Scott , President and Chief Executive Officer, 
  ValueBank Texas, on behalf of the Independent Community Bankers 
  of America (ICBA)..............................................     4
Motley, J. David, President, Colonial Savings, F.A., on behalf of 
  the Mortgage Bankers Association (MBA).........................     7
Wade, Holly, Director, Research and Policy Analysis, National 
  Federation of Independent Business (NFIB)......................     5

                                APPENDIX

Prepared statements:
    Calhoun, Michael D...........................................    40
    Heitkamp, R. Scott...........................................    60
    Motley, J. David.............................................    73
    Wade, Holly..................................................    86

              Additional Material Submitted for the Record

Luetkemeyer, Hon. Blaine:
    Written statement of the Credit Union National Association...    90
Barr, Hon. Andy:
    Chart entitled, ``FACT: Business lending has increased 75% 
      after Dodd-Frank''.........................................    92
Hill, Hon. French:
    Article from The Hill entitled, ``Why we must base the 
      banking regulation debate on real data,'' by Paul H. Kupiec 
      of the American Enterprise Institute.......................    93

 
                           THE STATE OF BANK
                           LENDING IN AMERICA

                              ----------                              


                        Tuesday, March 28, 2017

             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 2:02 p.m., in 
room 2128, Rayburn House Office Building, Hon. Blaine 
Luetkemeyer [chairman of the subcommittee] presiding.
    Members present: Representatives Luetkemeyer, Rothfus, 
Royce, Lucas, Posey, Ross, Barr, Tipton, Williams, Love, Trott, 
Loudermilk, Kustoff, Tenney; Clay, Meeks, Green, Heck, and 
Moore.
    Ex officio present: Representative Hensarling,
    Also present: Representative Hill.
    Chairman Luetkemeyer. The Subcommittee on Financial 
Institutions and Consumer Credit will come to order.
    Without objection, the Chair is authorized to declare a 
recess of the subcommittee at any time. And with regards to 
that, we are expecting votes around 3:00. I am not sure how 
long they will be, but it shouldn't probably take much more 
than an hour, but we will see, give or take some time. But we 
do anticipate that happening, so we hope everybody will be able 
to bear with us.
    Today's hearing is entitled, ``The State of Bank Lending in 
America.''
    Before we begin, I would like to thank the witnesses for 
appearing today. We appreciate your participation and look 
forward to a robust conversation.
    I now recognize myself for 5 minutes for an opening 
statement.
    In her testimony before the Senate Banking Committee last 
month, Chair Yellen painted a rosy picture of economic recovery 
and widespread credit availability. Chair Yellen supported her 
assertion by referring to the study conducted by one of our 
witnesses today, Holly Wade of the National Federation of 
Independent Businesses (NFIB).
    What Chair Yellen neglected to mention was that half of the 
small businesses surveyed by NFIB said that while they were 
optimistic about the future, they were still sitting on the 
credit sidelines. She also failed to highlight the fact that 37 
percent of small-business respondents said that taxes, 
regulations, and red tape were their top business problems. 
Simply put, the picture she painted last month doesn't match 
the reality that small businesses and their employees live 
every day.
    Like so many others in Washington, I don't think she quite 
gets it. The truth of the matter is that we have what some have 
referred to as a two-speed economy. Since the 2016 elections, 
consumer confidence is high, unemployment rates are trending 
down, and the economy is starting to show signs of life. While 
the Nation's economic health may be improving, many of her 
citizens continue to face significant headwinds as they seek to 
grow their businesses or build a better life for their family.
    So today we will scratch beneath the surface to examine 
what is happening in our economy and how it is impacting 
American consumers and small businesses. The unfortunate 
reality is that a significant number of borrowers are, and Ms. 
Wade's work demonstrates, sitting on the sidelines. And small 
banks, consumers, and small businesses continue to operate in a 
stalled economy with limited access to credit.
    Data from the Federal Reserve Bank of St. Louis indicates 
that in the years before passage of the Dodd-Frank Act, small-
bank lending was more than 150 percent above large-bank 
lending. In the 6 years after Dodd-Frank, small-bank lending 
was almost 80 per cent below large-bank lending. And the 
reality is that community financial institutions are the 
primary small-business lenders. Today, nearly half of small 
businesses and startups don't get the financing they seek. And 
the situation for consumers who have a less-than-pristine 
credit history or collateral isn't as bright as it should be.
    This week, the New York Fed released a study indicating 
that one in three Americans couldn't come up with $2,000 if 
faced with an emergency. So despite seemingly low unemployment 
rates, people are still living paycheck to paycheck, preventing 
them from achieving the economic stability all Americans 
deserve.
    Despite the rhetoric fed to us since its passage, consumers 
and small businesses haven't been protected by Dodd-Frank. 
Rather, the rules and regulations billed as a pathway to a 
stable economy have stifled small-business institutions and led 
to more restricted access and much more expensive credit.
    Even the Consumer Financial Protection Bureau (CFPB), which 
purports to protect consumers, has smothered innovation and 
financial products that Americans want and need. The result is 
that consumers and small businesses, the drivers of our 
economy, are left sitting on the sidelines and struggling to 
survive.
    Today's conversation may be one of the more important ones 
that we have. It will serve to examine an alarming trend that 
should be on the front page of every newspaper in America, and 
to better understand the actual impact the regulatory climate 
has on banks and their customers.
    I thank our witnesses for their time today and look forward 
to your testimony.
    The Chair now recognizes the ranking member of the 
subcommittee, the gentleman from Missouri, Mr. Clay, for 5 
minutes for an opening statement.
    Mr. Clay. Thank you, Mr. Chairman, for calling today's 
hearing to examine the state of bank lending.
    And I thank the witnesses for participating in today's 
hearing.
    Prudent bank lending is key to a sound banking system and a 
strong economy. Excessive bank lending without appropriate 
safeguards has proven to lead to a devastating financial 
crisis. This is why Dodd-Frank focused on restoring reasonable 
safeguards to better protect consumers from the kind of 
predatory lending that hurt so many people just a few years 
ago.
    Despite assertions by President Trump and our friends on 
the other side of the aisle that community banks and lending 
was crushed because of Dodd-Frank, the data tells a different 
story. As Joe Friday used to say, ``Just the facts, ma'am.'' 
And here they are.
    Banks have done quite well in the past few years and posted 
an all-time record in profits in 2016, making more than $171 
billion. The number of unprofitable banks has not been this low 
since 1995, more than 2 decades ago. Very few small-business 
owners report problems getting access to credit when they want 
it. And in fact, bank loans to businesses also hit an all-time 
high after increasing by 75 percent since Dodd-Frank became 
law.
    And how are community banks doing? According to recent FDIC 
data, community banks are outpacing their larger competitors. 
Community bank lending increased by more than 8 percent last 
year and they increased small loans to businesses at more than 
twice the rate of their peers. Community bank annual profits 
rose by more than 10 percent over the prior year.
    In the words of a Houston Chronicle article for my friend 
from Texas, ``Alternative facts underlie Trump's push to ditch 
Wall Street regulations.'' Dodd-Frank isn't making it harder 
for businesses to get loans.
    And I hope with today's hearing we examine the real facts 
and have a good discussion on sensible, targeted steps, not 
ideological rollbacks of Dodd-Frank, that we should consider to 
help small banks continue to lend responsibly to our community.
    And, Mr. Chairman, with that, I yield back.
    Chairman Luetkemeyer. The gentleman yields back. And I 
thank him for his statement.
    We will now turn to our witnesses.
    First, we welcome the testimony of Mr. Scott Heitkamp, 
president and chief executive officer of ValueBank Texas, who 
is testifying on behalf of the Independent Community Bankers of 
America.
    And I understand he needs to leave at about 4:30 to catch a 
plane, otherwise he is going to be stuck in our beautiful city 
here for a while, and I don't wish that on anybody, especially 
if you are not a tourist, and so we will excuse him. So heads 
up to all the Members, if you do have some questions of Mr. 
Heitkamp, please make sure you get those out first.
    Second, Ms. Holly Wade, who is the director of research and 
policy analysis at the National Federation of Independent 
Business. We welcome you.
    Third, Mr. David Motley, the president of Colonial Savings, 
who is testifying on behalf of the Mortgage Bankers 
Association. Welcome.
    And Mr. Michael Calhoun, who is the president of the Center 
for Responsible Lending. Welcome.
    Each of you will be recognized for 5 minutes to give an 
oral presentation of your testimony. And without objection, 
each of your written statements will be made a part of the 
record.
    So with that, I recognize Mr. Heitkamp. You are recognized 
for 5 minutes.

 STATEMENT OF R. SCOTT HEITKAMP, PRESIDENT AND CHIEF EXECUTIVE 
    OFFICER, VALUEBANK TEXAS, ON BEHALF OF THE INDEPENDENT 
              COMMUNITY BANKERS OF AMERICA (ICBA)

    Mr. Heitkamp. Thank you, Chairman Luetkemeyer, Ranking 
Member Clay, and members of the subcommittee. My name is Scott 
Heitkamp and I am president and CEO of ValueBank Texas in 
Corpus Christi Texas. I am also chairman of the Independent 
Community Bankers of America and I am testifying today on 
behalf of the more than 5,800 community banks we represent.
    Thank you for convening today's hearing on the state of 
bank lending in America. Despite some recent, positive news on 
the state of bank lending, now is not the time to be 
complacent. From my viewpoint as a community banker in south 
Texas, and from my conversations with hundreds of community 
bankers from around the country, I promise you that the 
economic recovery is lukewarm, uneven, and fragile. This view 
is supported by data that when broken down, shows a recovery 
that is mixed at best with notable regional differences in need 
of strong solutions.
    Today, a customer with a pristine credit score or a large, 
established business can get a loan. But this isn't the measure 
of a strong economy. When the credit box is tight, we have 
subpar economic growth. To break out of this rut and strengthen 
economic growth, we must expand credit availability to millions 
of hardworking households and would-be borrowers with less-
than-perfect credit scores. Many of these borrowers are in the 
middle to lower end of the income scale.
    Today's regulatory environment has choked off community 
banks' ability to take on and manage reasonable credit risk. 
Before I discuss ICBA's recommendations, I would like to give 
you some background on my bank.
    ValueBank Texas was chartered in 1967 and later acquired by 
my father. I am proud to carry on that legacy. Today, ValueBank 
Texas is a $213 million bank with 10 offices in Corpus Christi 
and Houston and 114 employees. We specialize in small-business 
and residential mortgage lending.
    As our name suggests, we are dedicated to creating value 
for our customers and our community. We are like thousands of 
community banks across the country with a vested interest in 
the success of our communities we serve today and for 
generations to come.
    Unfortunately, the number of community banks is rapidly 
declining. Today, there are some 1,700 fewer community banks 
than there were in 2010. This historic consolidation will harm 
competition and leave many small communities stranded without a 
local community bank. Any review of the health of today's 
community banking industry must take into account consolidation 
and a lack of de novo charters.
    I believe this consolidation and the lack of charter 
formation is due to the rise in regulatory burden. Today's 
banks need a larger scale to amortize the sharply increased 
costs of compliance. These same costs have a chilling effect on 
new charters. We need regulatory relief that will slow the 
consolidation trend, and encourage new charters, creating a 
more vibrant financial system for the benefit of our customers 
and small-business owners.
    According to a recent Urban Institute study, tight credit 
killed 1.1 million mortgages in 2015 alone. These would-be 
borrowers are people with lower credit scores and lower 
incomes. The study found that tight credit was directly related 
to regulatory restrictions.
    One of the bright spots in today's economy is a surge in 
optimism among small-business owners as shown in the NFIB 
survey. This optimism will lead to a growing demand for credit 
and we must ensure the regulatory environment allows community 
banks to meet that demand.
    The good news is that we have solutions. ICBA's plan for 
prosperity is a robust regulatory relief agenda with nearly 40 
recommendations that will allow Main Street and rural America 
to prosper. A copy of that plan is attached to my written 
statement.
    This committee's work in the last Congress set the stage 
for enacting meaningful regulatory relief. I want to highlight 
the CLEAR Act, soon to be reintroduced by Chairman Luetkemeyer. 
I also look forward to the reintroduction of Chairman 
Hensarling's Financial CHOICE Act. These bills, among others 
before the committee, are all part of the solutions to 
regulatory burden.
    We strongly encourage this committee to complete the work 
that was started in the last Congress and enact meaningful 
regulatory relief for community banks.
    Thank you again for this opportunity to testify, and I look 
forward to your questions.
    [The prepared statement of Mr. Heitkamp can be found on 
page 60 of the appendix.]
    Chairman Luetkemeyer. Ms. Wade, you are now recognized for 
5 minutes.

    STATEMENT OF HOLLY WADE, DIRECTOR, RESEARCH AND POLICY 
  ANALYSIS, NATIONAL FEDERATION OF INDEPENDENT BUSINESS (NFIB)

    Ms. Wade. Good afternoon, Chairman Luetkemeyer, Ranking 
Member Clay, and members of the Subcommittee on Financial 
Institutions and Consumer Credit. Thank you for the opportunity 
to testify today on the state of bank lending in America.
    Small businesses' ability to access financing is a vital 
component of a healthy small-business sector. Small businesses 
rely on financing for general business operations, but also 
expansion activities and reinvestment.
    NFIB regularly studies banking activities and borrowing 
trends among small-business owners. NFIB's small-business 
economic trends survey offers a monthly update on borrowing and 
lending trends among a random sample of NFIB's 325,000 small-
business members, a survey NFIB has conducted since 1973.
    Since the recession, loan demand has remained historically 
weak, even with record-low interest rates still available. The 
percent of regular borrowers has remained in the low 30s with 
little pick-up throughout the recovery, whereas previous 
expansions experienced a level of regular borrowing closer to 
40 percent. High numbers of firms remain on the credit 
sidelines seeing no good reason to borrow.
    The survey also asks owners if they were able to satisfy 
their borrowing needs over the last 3 months. In recent years, 
about 4 percent report that they were not able to satisfy their 
borrowing needs, significantly lower than the record high of 11 
percent reached in 2010.
    These trends are further reflected in NFIB's small-business 
problems and priorities survey that asks small-business owners 
to evaluate 75 business-related problems. From 2012 to the 
current 2016 report, financing has become less of an issue for 
many owners with fewer interested in borrowing due to slow 
economic growth, but also due to better balance sheets for 
those seeking credit.
    The ranking for obtaining long-term and short-term business 
loans both fell precipitously from 2012 to 2016. The former 
fell 13 positions to its current ranking of 69 out of 75 
issues, and the latter 12 positions to the ranking of 70th. The 
percent of owners finding each a critical issue also fell from 
about 11 percent to 6 percent in the current report.
    But there are a few pockets of small businesses that do 
have more difficulty accessing credit than the general 
population: businesses experiencing declining sales of more 
than 10 percent; and those experiencing rapid growth of 50 
percent or more over the last 3 years. The difficulties of the 
former are generally self-explanatory, but the latter is of 
significant concern, as those businesses generate jobs and 
economic growth.
    For example, obtaining short-term and long-term loans 
currently ranks 39th and 42nd, respectively for high-growth 
firms, roughly 30 positions higher than the ranking for the 
overall population. And more than twice as many owners find 
each a critical issue.
    The reasons why high-growth small businesses have a more 
difficult time obtaining credit compared to years past are less 
obvious. But the decline in the number of small community banks 
is of particular concern. Small-business owners are far more 
successful accessing credit through smaller regional banks than 
larger ones.
    A recent Federal Reserve survey found that while 76 percent 
of small-business applicants were approved for some credit at 
small banks, only 58 percent were approved at larger banks. The 
downward trend of commercial banks is not new. But over the 
last 8 years, the number of commercial banks has dropped from 
about 7,000 in 2009 to its current level of about 5,000.
    The importance of these banks cannot be overstated for 
small businesses, but also for the banking system itself. NFIB 
worries that overregulating these smaller community banks will 
create more bank consolidation and deter new bank formations. 
Loans to these small businesses are critical to the health of 
local communities and, collectively, to the health of the 
small-business sector.
    With recent improvements in small-business optimism, owners 
are in a good position to grow and reinvest in their business. 
If this occurs, borrowing activities should pick up. Market 
forces, not regulators in Washington, should manage the supply 
and price of banking services and loans so that small-business 
financing remains available for a potential increase in small-
business borrowing.
    I appreciate the opportunity to discuss the current state 
of small-business financing and the challenges that face us 
going forward, and I look forward to working with the committee 
to support small businesses and strengthen the U.S. economy.
    Thank you.
    [The prepared statement of Ms. Wade can be found on page 86 
of the appendix.]
    Chairman Luetkemeyer. Thank you, Ms. Wade.
    Mr. Motley, you are now recognized for 5 minutes.

  STATEMENT OF J. DAVID MOTLEY, PRESIDENT, COLONIAL SAVINGS, 
   F.A., ON BEHALF OF THE MORTGAGE BANKERS ASSOCIATION (MBA)

    Mr. Motley. Chairman Luetkemeyer, Ranking Member Clay, and 
members of the subcommittee, I appreciate the opportunity to 
testify this afternoon on behalf of the Mortgage Bankers 
Association.
    MBA represents mortgage lenders of all sizes and business 
models, from small, independent mortgage bankers to community 
banks like mine, to the Nation's largest financial 
institutions. Each segment of our industry plays a unique and 
vital role in the market.
    As a 4-decade veteran of the mortgage industry, I can tell 
you from experience that recently enacted laws have created 
commendable consumer protections and have made the mortgage 
market a safer place to do business.
    MBA has consistently supported reasonable requirements that 
will prevent a reemergence of housing and market disruptions. 
However, we must be mindful that new regulatory demands imposed 
under Dodd-Frank have also negatively impacted the availability 
and affordable and sustainable mortgage credit.
    MBA's data show that mortgage credit availability remains 
far below history norms. As a result, many borrowers, too often 
already underserved populations, have been left on the 
sidelines. Now that most of Dodd-Frank's mortgage rules have 
been implemented, it is time to review these regulations and 
make the necessary adjustments.
    Let me highlight some of the key issues we feel would allow 
lenders to reach more credit-worthy borrowers. There is no 
better place to start than with the CFPB's ability-to-repay 
rule. MBA appreciates the work of this committee and that of 
the CFPB to address some of the flaws in the qualified mortgage 
definition. We believe that rather than continue to address the 
rule in a piecemeal fashion, now is the time to examine it 
holistically, so that all lenders can deliver QM loans to 
consumers, regardless of size of business model.
    To achieve this, we urge Congress and the Bureau to: expand 
the legal safe harbor to all QM loans; increase the small-loan 
threshold to fit more smaller-balance loans under the QM 
umbrella; establish alternatives to the QM underwriting 
criteria to allow lenders to use other commonly accepted 
underwriting standards; broaden the ability for lender-secured 
defects and technical errors in those loans; pass the Mortgage 
Choice Act, which would exclude title insurance fees paid to 
lender-affiliated companies from the calculation of points and 
fees; and finally, start the process of replacing the so-called 
QM patch by developing a transparent set of criteria to define 
QM.
    Beyond these QM changes, there are several other areas that 
should be addressed. First, as a mortgage servicer, I know the 
cost to service loans has increased dramatically. This is due 
to new CFPB rules as well as the punishing treatment of 
mortgage servicing rights under the Basel III framework. Under 
that rule, banks are required to hold extraordinary amounts of 
capital to support the MSA asset, making it less likely that 
banks like mine will retain mortgage servicing.
    Amid the backdrop of complicated and conflicting servicing 
rules, these increased costs directly impact consumer access to 
credit and make new-loan production less attractive to lenders.
    Second, the CFPB should be required to provide 
authoritative written guidance to accompany its rules. The 
CFPB's resistance to providing timely written guidance has 
resulted in confusion, increased costs, and credit overlays by 
uncertain investors. This is particularly notable in the 
implementation of the know before-you-owe rule.
    Third, regulatory burdens on independent mortgage bankers 
need to be addressed. For example, State-licensed lenders face 
frequent and duplicative examinations from the CFPB in each 
State in which they operate. MBA urges rationalizing this 
process by requiring the CFPB to adopt formal, risk-based 
standards for examinations and to better coordinate with the 
States.
    MBA also supports establishing an appeals process for CFPB 
exams that applies to both banks and nonbanks and adoption of 
transitional licensing under the SAFE Act.
    Fourth, the Justice Department's enforcement action under 
the False Claims Act continues to have a chilling effect on 
lender participation in the FHA program. The resulting legal 
liability for what are oftentimes immaterial defects has forced 
lenders to impose new credit overlays or limit their 
involvement in FHA altogether.
    So long as the Justice Department continues to impose these 
draconian penalties on lenders for foot faults, the remaining 
FHA lenders will continue using overly cautious, defensive 
underwriting that limits options for borrowers.
    In conclusion, the current regulatory environment has 
increased costs and forced many responsible lenders to limit 
their lending. This harms consumers, most often low- to 
moderate-income borrowers, minorities, and first-time home 
buyers. We urge this subcommittee to do a thorough review of 
these rules and regulations and make adjustments where 
necessary. Done properly, we can balance the need for 
appropriate consumer protections while ensuring access to safe, 
sustainable mortgage credit.
    Thank you.
    [The prepared statement of Mr. Motley can be found on page 
73 of the appendix.]
    Chairman Luetkemeyer. Mr. Calhoun, we now recognize you for 
5 minutes.

    STATEMENT OF MICHAEL D. CALHOUN, PRESIDENT, CENTER FOR 
                      RESPONSIBLE LENDING

    Mr. Calhoun. Thank you, Mr. Chairman, Ranking Member Clay, 
and members of the subcommittee for the opportunity to testify 
today on this important topic.
    The state of our banks is critical to our country's 
economic well-being. In my testimony today, I want to 
underscore three points, but focusing most on how best we can 
move our economy forward.
    First, as noted, data show that banks and especially our 
community banks are helping to spearhead our Nation's economic 
recovery.
    My second point is that there are broadly supported steps 
that can be taken immediately to improve bank regulation and 
lending. And these should be implemented.
    And finally, we must reject those proposals that would 
thwart the advancement of our economy.
    My testimony reflects my experience as president of the 
Center for Responsible Lending, but also as former general 
counsel of our lending affiliate, the Self-Help Credit Union. 
It was established in 1982 to expand access to credit, and in 
subsequent years has provided over $7 billion of financing for 
first-time home buyers, small-business loans, and other 
consumer loans. Today, we serve more than 100,000 account 
holders with a full range of financial services.
    In the early 2000s, the Center for Responsible Lending was 
established in response to the growing predatory subprime home 
loans and it works to promote sustainable lending.
    On the first point, as noted, after a long and painful 
recession, our financial institutions and the economy are 
recovering. And bank and credit union profitability is at near-
record level and lending volumes, including commercial and 
industrial lending, are increasing. Community banks are doing 
particularly well, as are smaller lenders in general.
    This is a healthy sign. And as anyone in the banking 
industry knows, bank profits are still a very small part of the 
costs of financial services, usually 2 percent or less. Today's 
market is a welcome relief from the Great Recession when banks, 
especially community banks, were hit so hard.
    The climb back has been hard. And while some contend that 
new regulations have depressed that return, numerous studies 
and data from government and private researchers show 
otherwise. And those are set out and discussed in my testimony.
    I would note, for example, the Urban Institute, cited 
often, found that the QM rule was not restricting credit 
access.
    Looking first at the areas where we can move forward with 
the ability-to-repay mortgage rule, that has been a common-
sense requirement that has produced a better market, but there 
are ways that it can be improved. It includes importantly a 
two-tier approach. There are a number of important provisions 
where there is additional flexibility for smaller lenders. And 
in fact, the data as set out in our testimony show that 
mortgage growth since Dodd-Frank, mortgage originations, have 
grown the fastest for smaller lenders as opposed to largest 
lenders.
    As noted by my friend here, the housing area that maybe can 
be improved most quickly is FHA. The continuing uncertainty of 
the False Claims Act, as mentioned, is discouraging lending to 
first-time home buyers, which are a key lagging part of the 
overall housing market.
    In addition, FHA servicing requirements are poorly 
structured, harming lenders, consumers, and taxpayers alike. 
They should be reconciled and reformed to match up with other 
industry standards.
    A broader area for reform and one that is often overlooked 
is the Bank Secrecy Act, and the Anti-Money-Laundering Act. It 
is essential to prevent terrorists and other criminals from 
using our financial services system as a vehicle to cause harm. 
But these Acts place a very heavy regulatory burden on banks 
and, most particularly, on small banks.
    I can tell you, the experience I had at lending programs in 
our bank, it was one of the toughest regulatory burdens. And 
the ABA, in fact, in a survey of compliance officers, found it 
was the costliest regulatory burden.
    There is a pretty easy way, though, to substantially 
improve that, and that is simply to have ownership data 
collected when businesses are formed rather than placing that 
burden on the banks. Many groups, including ICBA, The Clearing 
House, and others have endorsed this, and bipartisan bills have 
been introduced to implement it. It would be a major advance.
    The one thing we need to do is not step backwards, such as 
by thwarting the work of the CFPB or by creating huge, gaping 
loopholes in the QM rules, such as having portfolio loans being 
swept in for all lenders. I look forward to discussing that 
further with you during our questions.
    Thank you again.
    [The prepared statement of Mr. Calhoun can be found on page 
40 of the appendix.]
    Chairman Luetkemeyer. Thank you, Mr. Calhoun.
    And I thank all of our witnesses for their testimony. Good 
job.
    I will recognize himself now for 5 minutes for questions.
    The name of our hearing today is, ``The State of Bank 
Lending in America.'' And I guess the first thing we need to 
establish is, is there plenty of money to lend?
    Mr. Heitkamp, you represent the independent community 
banks. Is there plenty of money in the community banks to be 
able to address the needs of the citizens and the businesses of 
the communities?
    Mr. Heitkamp. Our liquidity is strong. We have plenty of 
liquidity to lend. We are just looking for a place for it.
    Chairman Luetkemeyer. Mr. Motley, what about you? You are 
mortgage bankers, are you guys all ready to go, to jump into 
the market here, with plenty of money to hand out to folks?
    Mr. Motley. We have plenty of money to lend. The issue that 
we have is making sure that we are threading the needle to 
comply with the regulatory framework that we live with today.
    Chairman Luetkemeyer. That was my next follow-up; it's a 
nice segue for me here. Once we have established the fact that 
we have the money, now we have to figure out why it is not 
getting to the people, or is it getting to the people? And if 
so, how are we helping people? Or are we not helping people? 
That is the reason for the hearing today, to find out what kind 
of lending is going on and what kind of lending is not going 
on.
    So to follow up with you, Mr. Motley, you made a comment 
that Dodd-Frank regulations are hurting lending, and you 
advocated a whole lot of different rules and regulation changes 
that would help implement a lot more lending to continue to 
allow people to be able to participate in the economy, and I 
guess do it in a safe way. So would you like to elaborate on 
just a little bit of that?
    Mr. Motley. Sure. The QM rule did establish some basic, 
prudent underwriting criteria, but it is very, very specific 
and it relates to the Appendix Q underwriting guidelines that 
are referenced in the Act.
    Appendix Q was lifted from the FHA 4155 handbook, and that 
4155 handbook is not particularly applicable to new types of 
households, to underserved markets, underserved people who are 
trying to enter the market, who might be trying to use multiple 
sources of income, there could be multiple households or 
generational households put into one household, and trying to 
fit that type of income documentation into the Appendix Q 
protocol is very difficult to do.
    So we believe that Appendix Q needs to be modified, that 
there needs to be an alternative or an expansion to Appendix Q 
to allow lenders to react to today's marketplace.
    Chairman Luetkemeyer. Okay, thank you.
    Mr. Heitkamp, I had a banker come to me the other day and 
he told me this story. He said, ``I had a customer of mine who 
came into the bank. He has a half-a-million-dollar home, and he 
wants to sell it and buy another home, but he needs $250,000 to 
buy this other home and didn't have that extra amount of cash, 
but he had less than 30 days to do the deal.
    ``So he had a half-a-million-dollar asset that he really 
couldn't take advantage of because of the timing of all of the 
rules and regulations here. And so, he had to cobble together a 
bunch of other assets to get to about $200,000, and the bank 
then made him a loan, but they said they were exposed for the 
other $50,000 of the $250,000 loan to him.
    And so, if regulators would have come walking in that 
particular day and seen a loan like this that was secured by 
$200,000 basically with the cash and a $50,000 exposure, what 
would have happened? And is this a common occurrence in your 
bank, the situation that the rules and regulators are putting 
you in?
    Mr. Heitkamp. Yes, sir. I think we find that all the time. 
I think we have rules that are supposed to help us, but they 
hurt us from taking care of our borrowers. We have instances 
all the time where we have borrowers come into the bank asking 
for us to make them a loan. We want to make the loan, they have 
plenty of assets, they have plenty of--
    Chairman Luetkemeyer. And these are customers that you 
are--
    Mr. Heitkamp. These are our customers. I will give you an 
instance. Last week, we had a lady--we are in a retirement 
community. Corpus Christi is down in the south of Texas, in the 
Gulf Coast, and people want to retire down in Corpus, are 
coming from the Dallas area or the Houston area and want to 
retire. They have a home still left where they lived. They are 
moving down, they are deciding either they want to rent that 
home or they want to sell it.
    But they want to come down to Corpus. They have found a 
home they wanted to buy, they fell in love with the home. They 
came to the bank and said they would like to buy this home. And 
through the QM qualifications, the debt-to-income level is 43 
percent, so they couldn't qualify.
    And our bank made the decision that we are not going to 
have non-QM loans so we weren't going to take the risk of being 
sued and figuring out how that is going to work out later on. 
So a good borrower, with a good capacity, we felt for them, but 
we just couldn't take that risk.
    Chairman Luetkemeyer. Ms. Wade, very quickly, I am about 
out of time here, but you made the comment in your testimony 
that the difference between small banks giving approvals to 
small businesses and large banks is about a 20, 25 percent 
difference. Can you explain that difference, why the difference 
is there? If you had the identical customers, why are small 
banks doing a better job or being more liberal or more 
accommodating to small businesses versus large banks?
    Ms. Wade. Sure, thank you. From what we have heard from our 
members, small-business owners, generally the local community 
banks have a small-business staff, a person in the bank who 
knows the community, knows the area, and is better able to help 
them finance their business through lines of credit or 
traditional bank loans compared to larger banks that might not 
have the local expertise that is needed.
    Chairman Luetkemeyer. Thank you.
    My time has expired. With that, we will recognize Mr. Meeks 
from New York for 5 minutes.
    Mr. Meeks. Thank you. Thank you, Mr. Chairman.
    And I want to thank the witnesses. I think all of you made 
excellent presentations. And I think that I agree with you in 
that we have to make sure that the pendulum didn't swing all 
the way the other way. At one time we had no-doc loans, et 
cetera, and anybody could get a loan. And now in an effort we 
have to make sure that pendulum did not swing all the way the 
other way so that folks don't have access to loans and make 
sure that they have more available.
    And I know and I compliment the smaller community banks and 
what you have done. I have said often, my parents probably 
would have never owned a home if it wasn't for a small bank 
that took a risk on them, that they would be able to buy the 
home that they purchased.
    I know that Mr. Barr has a bill that he is working on. I am 
not on that bill yet, but I am looking forward to continuing to 
talk to him, because with his Portfolio Loan and Mortgage 
Access Act, I think it may be heading in a direction that maybe 
we can do something in a bipartisan way. And so, I look forward 
to continuing to work with him in that vein because I think 
this is tremendously important that we make sure there is 
access.
    Let me ask, yesterday I was reading in the American Banker 
an article that touched on how banks of all sizes--actually, I 
am really focused on the community bankers--are investing in 
small-business loan funds to meet their CRA economic 
development goals. And while the funds allow the participating 
banks to mitigate risk and diversify their small-business 
lending, the lending seems to be increasing access. And as a 
result, these funds allow small entrepreneurs to obtain the 
capital to finance their business ideas.
    So, Ms. Wade, would you talk about the impact, if you will, 
the Community Reinvestment Act has had on increasing small 
businesses' access to capital? And are there things Congress 
can do or should do to increase CRA business loaning?
    Ms. Wade. Thank you for the question. The members that we 
survey, I don't know how they are affected by that. But for the 
most part, they aren't seeing a whole lot of obstacles in 
gaining access. The problem that we see is that there isn't a 
lot of optimism or expansion opportunities for them to borrow.
    And so the lack of confidence in the economy growing, even 
if sales are increasing a bit, they aren't confident about 
expanding their business, reinvesting in their business, given 
the current state of the economy. And that has been one of 
their main problems in growing. And that is where we see the 
low borrowing rates from our members.
    Mr. Meeks. And let me ask Mr. Motley, because here is 
another reason. Oftentimes, when people say CRA, they may think 
just urban America. But I think urban America and rural 
America, in certain areas they have the same problems as far as 
access and finding and getting loans.
    So I would ask Mr. Motley, do you think there is a way to 
strengthen CRA to incentivize banks to serve small, rural as 
well as urban areas in these underserved communities? In other 
words, are there incentives that we can provide through CRA to 
encourage more reasonable risk-taking by some banks so that the 
smaller entrepreneurs can get access to capital?
    Mr. Motley. Are you referring primarily to rural lending?
    Mr. Meeks. Rural or I think they are similar. CRA reinvests 
in communities that are underserved. So they help rural areas 
that are underserved, but also help urban areas that are 
underserved, so that both have more access to capital.
    Mr. Motley. We satisfy our CRA opportunity primarily 
through low- to moderate-income lending with the FHA program. 
We do a little bit of lending on a commercial basis throughout 
our marketplace. And those are underwritten to our personal 
standards there in town.
    But one of the things that we have a tremendous challenge 
with in the rural areas and outlying areas is the appraisal 
process. There are very few appraisers available. It is 
difficult for us to get timely appraisals. And so that is a 
challenge to us being able to serve that rural neighborhood, 
both from a residential standpoint and from a commercial 
standpoint.
    Mr. Meeks. Let me ask you. I have 29 seconds left, and I 
just wanted to find out, maybe I will ask Mr. Calhoun, CDFIs, I 
saw that they were being zeroed out under the current budget. 
Could you tell me the significance of CDFI funding to small-
business communities? And are you alarmed at all by zeroing out 
CDFIs?
    Mr. Calhoun. Very quickly, CDFIs have played a leading role 
in providing that small-business lending to particularly 
underserved parts of the market. And historically, the CDFI 
program has enjoyed strong bipartisan support for that reason.
    Mr. Meeks. Thank you.
    I am out of time. I yield back.
    Chairman Luetkemeyer. The gentleman yields back. With that, 
we go to the vice chairman of the subcommittee, Mr. Rothfus 
from Pennsylvania, for 5 minutes.
    Mr. Rothfus. Thank you, Mr. Chairman.
    Mr. Heitkamp, I wanted to ask you a couple of questions. 
Last week we had a hearing about the lack of de novo activity 
that we have been seeing, also a striking consolidation that 
has been going on in the community bank sector.
    Now, I am hearing from community banks on a regular basis 
and their customers about the post-crisis lending environment 
and the challenges they face in complying with all of the new 
regulations. Unfortunately, some on the other side of the aisle 
dismiss these complaints, telling us that bank lending is 
strong and that profits are high so there cannot be any real 
problems.
    But I think that is a superficial view of the state of bank 
lending in our economy today. And what we have is a two-speed 
economy. There is one speed for the largest firms, individuals 
with the best credit and the biggest banks and there is another 
speed for everybody else.
    As you noted in your testimony, ``A customer with a 
pristine credit score, or a larger, established business can 
secure a loan. But those with less-than-perfect credit, middle- 
and lower-income Americans, and those trying to start small 
businesses are not finding it so easy to access capital.
    Community bank consolidation and the de novo drought have 
surely contributed to this bifurcation since many of these 
groups would normally turn to community banks for capital. In 
fact, lending by smaller banks was more than 150 percent higher 
than large-bank lending before Dodd-Frank, but today it is 80 
percent below large-bank lending.''
    Can you describe how regulatory burdens play a role in 
creating this two-speed economy?
    Mr. Heitkamp. Yes, sir. I think when you look at it and you 
see the difference with the regulatory burden and talking about 
de novo charters, I think that is the reason why we have a lack 
of de novo charters is the regulatory burden. You are looking 
at why you would take that risk and getting involved with the 
regulatory environment today is you are seeing a lot of people 
saying there are too many regulations and risks to put my money 
at work to take that risk.
    Mr. Rothfus. Can you identify or tell us why certain 
regulations disproportionately disadvantage smaller banks?
    Mr. Heitkamp. Our compliance costs are through the roof. I 
can give you--in my bank, for instance, in the last 5 to 7 
years, I have a compliance person, I have a checker of the 
compliance person, I have people doing the job day to day. And 
we are looking at that burden every day to make sure that we 
don't make a mistake because that mistake will cost us a lot. 
So the compliance cost is a lot of the burden that we have to 
deal with.
    Mr. Rothfus. Now, how has your bank's lending activity 
changed as a result of Dodd-Frank?
    Mr. Heitkamp. Our loan-to-deposit ratio is about 70 
percent. We keep it about 80 percent. It is down about $10 
million in the last 5 years. We have been struggling to keep it 
there. We are trying to hire new people to get it involved, but 
overall compliance and just the lack of the small- to mid-sized 
customer not having that flexibility where they can come in, 
sit across the desk, and say I can take that risk with you, 
with that regulatory risk that we need to take, we are not 
willing to do that. So it is forcing some of those customers 
not to have that credit.
    Mr. Rothfus. Mr. Motley, if I could ask you a couple of 
questions. In your testimony, you discussed the tremendous 
uncertainty about how the CFPB will approach various compliance 
issues. You wrote, ``Despite the extensive liability that can 
arise from the Truth in Lending Act (TILA) violations, the CFPB 
has largely forgone providing guidance on TRID, taking the 
position that such questions will be settled by the courts.''
    Can you describe how the CFPB's regulation by enforcement 
impacts consumers?
    Mr. Motley. Sure. We can mitigate credit risk, we can 
mitigate rate risk. We have a very difficult time mitigating 
regulatory risk because the rules have not been clearly defined 
in every case. And when we ask for rule clarifications, we get 
webinars, we get presentations, but at the bottom of every one 
of those presentations it says you cannot rely on this as being 
authoritative, you must rely on written guidance, and yet we 
don't get that written guidance from the CFPB. So it makes it 
more difficult for us to lend.
    And when we are faced with the possibility of a loan being 
kicked out of a pool or a challenge in court at foreclosure 
time, if there is a problem with the regulatory issues, with 
the disclosures, we are going to run into a problem with that. 
So we are more likely to take a more conservative approach and 
lend very much within the credit box rather than out to the 
edge of the credit box. And if we had more regulatory clarity 
from the CFPB in terms of written guidance, I think that all 
lenders would be more likely to lend to the edges of that 
credit box and live within the rules.
    Mr. Rothfus. Thanks, Mr. Chairman. I yield back.
    Chairman Luetkemeyer. The gentleman's time has expired.
    I recognize the gentleman from Texas, Mr. Green, for 5 
minutes.
    Mr. Green. Thank you, Mr. Chairman.
    And I thank the witnesses for appearing as well.
    And, Mr. Chairman, I want to especially thank you for 
styling the hearing today. You styled it, ``The State of Bank 
Lending in America.'' You didn't say, ``horrible bank 
lending.'' There are so many adjectives that you could have 
used, and you did not. And I must tell you, I appreciate it. It 
gives each side an opportunity to make the case and to hear 
evidence, if you will, hearkening back to a prior life. So 
thank you for your balanced approach to styling this hearing.
    I am one who believes that community banks, by a given 
definition, should be aided in every possible way. We do from 
time to time have difficulty defining community banking. 
Eighty-nine to 90 percent of all banks are a billion and under, 
$1 billion and under. We have tried to fashion rules to cover 
90 percent of all banks, rounding up, but the problem that we 
have run into is that when we try to do this, there is a desire 
to go through the entire additional 10 percent or to some 
additional portion of the 10 percent that wouldn't be covered.
    We tried to do this with H.R. 2642, the Community Lender 
Regulatory Relief and Consumer Protection Act of 2015, lots of 
relief for what I call community banks.
    My friend from Texas, your bank started in 1967, with $213 
million and 114 employees, am I correct?
    Mr. Heitkamp. Yes, sir.
    Mr. Green. A good bank, by the way. I compliment you. That 
was not a commercial, but I compliment you. If we could fashion 
a bill to cover all banks at a billion and under, will your 
association in Texas support that bill to cover banks at a 
billion and under as opposed to up to the $50 billion level?
    Mr. Heitkamp. I think you have to look at it in a way of 
what a community bank is. A billion and under--
    Mr. Green. Yes, this is where we run into the problem. Go 
right ahead.
    Mr. Heitkamp. Yes.
    Mr. Green. This is where we run into the problem.
    Mr. Heitkamp. You can put a threshold out to the billion 
and under, there are community banks that really serve their 
community that are--
    Mr. Green. If I may reclaim my time, we are talking about a 
bill that would cover 90 percent of all of the banks in the 
country, most of them are a billion and under, but this is 
exactly where we go when we try to fashion the bill for the 90 
percent. It becomes a question of, how do we get to the $50 
billion banks?
    I want to help and I believe that we could do something now 
as opposed to continuing to put it off until we can get the $50 
billion banks in. And $50 billion is a number that I am 
throwing out and most of you know why. That is where the 
trigger is. What trigger, you ask? The trigger for living 
wills. The trigger for a SIFI designation.
    Those are things that we could debate at a later time. If 
we could help the 90 percent of all banks that are under a 
billion dollars, these are the community banks, these are the 
small banks that you talk about. But when we get ready to 
legislate, we have to go to $50 billion.
    So I am with you on the small-bank issue that you raise. 
But it is just that when we try to do something for you, it 
goes to $50 billion. At some point, you are going to have to 
let them go. You will have to let them go. We will deal with 
them. You don't have to carry their water. It is good water. 
Let them carry it.
    I yield back.
    Chairman Luetkemeyer. The gentleman yields back.
    The gentleman from Kentucky, Mr. Barr, is recognized for 5 
minutes.
    Mr. Barr. Thank you, Mr. Chairman. Thanks for the great 
hearing.
    And I appreciate the testimony from our witnesses. I am 
actually asking you all to take a look at a slide that my 
friends on the other side of the aisle have been displaying 
during their questioning. And they are citing Federal Reserve 
statistics and saying that business lending has actually 
increased after Dodd-Frank, citing commercial industrial bank 
loans at a record high.
    I want to kind of dig deep at this, because as the ranking 
member of the subcommittee pointed out, just the facts.
    This, in my judgment, reading about trends since Dodd-Frank 
is not just the facts. There are other facts, there is context 
that I think we have to put into this.
    About 25 years ago, small banks under a billion dollars in 
assets, total industry assets were around 30 percent, $1 
billion to $10 billion about 35 percent, and those bigger banks 
over $10 billion about 35 percent. Today, it is a dramatically 
different picture. Today, total industry assets for these 
community banks under a billion dollars is less than 12 percent 
of all total industry assets, as I look at the statistics. And 
we know that since Dodd-Frank, we have 1,700 fewer community 
banks than there were in 2010.
    So what the real picture says is that lending from 
community banks is off, it is much less. And so to the extent 
there is business lending increasing, it is coming from the 
larger banks and it is benefiting larger borrowers. So emerging 
growth companies, small businesses, entrepreneurs, and sole 
proprietors, the real engine of economic dynamism, the job 
creators, that is off, that is way down. And that is what that 
slide doesn't show.
    And here is why that matters to me. I represent a district 
in rural Kentucky. And three-fourths of all lending in rural 
America come from those small community banks. In fact, the 
community banks in my district, some of them are less than a 
hundred million dollars in assets. And that lending is way off. 
So that is where the concern is, small-bank lending in rural 
America, small-bank lending where you are talking about half of 
all small-business lending comes from these community banks.
    So, Mr. Heitkamp, as the representative of the community 
banks here, can you elaborate, is that analysis correct? And is 
that an explanation for why this slide that my friends on the 
other side of the aisle--why that slide is totally misleading?
    Mr. Heitkamp. Yes, I think that is definitely a good 
conclusion, that you are seeing a lot of larger credit unions 
and larger banks happening, $5-, $10-, $15-, $20 million drive 
up that data that is just hard data. And when you break down 
the data, you look at the, like you said, community banks make 
better than 50 percent of all small-business loans and I 
believe we do that. It is getting harder for us to do because 
of the credit box that we are in with the regulatory burdens. 
We can't take that additional risk.
    Years ago, 7 years ago, 10 years ago, 7 out of 10 small 
businesses came out of the small bank. You look at some of the 
Dells or you look at some of the big companies, seven of those 
took the risk, some community bank took the risk with those 
guys. And so that is why I think we are having the challenge 
that we have today with the regulatory box that we are in.
    Mr. Barr. We have lost one in five banks in Kentucky since 
Dodd-Frank. That is a problem. One in five credit unions as 
well. And I think that is compromising access to credit for the 
small businesses and for rural America.
    I want to switch over to Ms. Wade and Mr. Motley for a 
minute, especially Mr. Motley on the portfolio lending 
legislation.
    Mr. Calhoun is concerned in his testimony that portfolio 
lending is dangerous. With all of the exams that occur, and, 
Mr. Heitkamp, you can weigh in here as well, with all of the 
scrutiny and the supervision that is happening right now, is 
Mr. Calhoun right that there is a risk with portfolio lending?
    Mr. Motley. I think that there is the potential to put 
loans in portfolio that might not be prudent over time. And 
particularly if we are going to define a community bank by 
size, size varies, asset sizes vary. And so if you set a 
threshold of a billion dollars, let's say, and then you go 
above or below and now you have different regimes of rules that 
you have to comply with, I think that a better approach is to 
make the QM rule, make a few revisions to the QM rule that 
would be applicable to all players in the marketplace rather 
than putting it in just whether or not it is in the portfolio.
    Mr. Barr. In my remaining time, we see from HMDA data that 
there has been a big drop in lending to manufactured housing 
loans. Based on your knowledge in the marketplace, do you think 
Congress should act to alleviate the harm to borrowers in the 
manufactured housing space?
    Mr. Heitkamp?
    Mr. Heitkamp. We are in a coastal community, so we don't 
have a lot of mobile homes because of wind storms rules. So I 
can't really answer that.
    Mr. Barr. Okay. My time has expired. I yield back.
    Chairman Luetkemeyer. The gentleman's time has expired.
    The gentleman from Washington, Mr. Heck, is recognized for 
5 minutes.
    Mr. Heck. Thank you, Mr. Chairman, very much.
    I would like to begin just by making an observation about 
something which Mr. Motley suggested, namely that there can be 
risk involved in portfolio lending. I am painfully reminded of 
Washington Mutual, which kept their mortgages or a good 
percentage of them in portfolio, and it didn't stop them from 
taking on risks that they thought they could stay ahead of 
because those homes would be turned at some point and the dance 
would never end. But of course, it did.
    I actually want to ask about mortgages.
    Mr. Motley, let me start with you, if I may. There seems to 
be a new stubborn structural disparity between how many housing 
units we are creating and what the demand is. And in certain 
communities where never before have we had this structural 
difference between supply and demand, we just can't seem to get 
out ahead of it. Last I read, I think we are at an annual rate 
of 1.2 million. Demand for that is obviously higher.
    And as though I needed proof, and I don't, I have very dear 
friends who bought a home in Seattle about 30 years ago. And 
they finally decided to move into a senior-assisted center. 
They sold their home on--and this was a modest, nice but modest 
3-bedroom, cottage kind of home, bungalow kind of home--the 
first day they listed it for $150,000 more than the asking 
price. And that is what is happening in a lot of areas in the 
Seattle market. And I am very concerned about this and about 
what it is that we could do moving forward.
    I am from the school that says that the reasons we have 
this problem with lending and in fact in providing for housing 
is almost always more three-dimensional and complex than most 
people want to give it credit for.
    But I am interested as, speaking on behalf of mortgage 
bankers, what you might have to observe about this new 
phenomenon of there being structural differences between supply 
and demand, including in, for example, some Midwestern 
communities that we had not gone through this quite as we are 
this time.
    So what can you say that might provide insight or help with 
respect to understanding where we are in the housing market? 
Fair question of you, Mr. Motley?
    Mr. Motley. Okay, let me see if I can answer that or give 
you my opinion on it. There are significant challenges in the 
first-time home buyer market in the low-income area of housing 
where people need to get in, want to get into housing, but 
because of the cost they just can't do it. And what are some of 
the issues that are involved in that cost?
    Well, local regulations. Land costs, very, very high. 
Regulations with regard to new construction have been imposed 
and it makes it very, very difficult for builders these days to 
build a low-to moderate-income house and make money at it.
    Mr. Heck. And make any money at it.
    Mr. Motley. Right, right. And so there is that supply 
issue. But then also from the mortgage side, and this is one of 
the things that I would ask you to consider about the QM rule, 
the QM rule says that you cannot--and I am going to defer to my 
friend Mike here on the exact formulation. There is an APR cap 
that says that the interest rate or the APR cannot be more than 
1\1/2\ percent over the average prime offer rate. That is a 
very narrow range. And what happens when you go over that APOR 
by 1\1/2\, is that it becomes a non-QM loan. Non-QM loans are 
not liquid. They are not fungible in the marketplace. They are 
viewed as toxic. And so one of the things that we proposed--
    Mr. Heck. Excuse me, Mr. Motley, that is a very interesting 
point. Thank you. But if I understood you correctly, you are 
suggesting that in order to be a more liquid market and a more 
attractive market to lenders that you need to be able to charge 
more to the people who are on the low-income end of--
    Mr. Motley. I am just saying that is the way the 
calculation works out when you have a low-balance loan because 
there are fees like title fees that are fixed fees, not a 
percentage of the loan amount. You have to add those fees into 
the calculation to get to that APOR. And if you go over that 
threshold, it becomes a non-QM loan.
    Mr. Heck. Mr. Calhoun, would you be supportive of that 
change as well, sir?
    Mr. Calhoun. We did support that and have for a long time. 
It is in our written testimony. And the effect of giving that 
50 basis points extra of cushion is equivalent in allowing four 
extra points of closing costs. So it doesn't look like a lot, 
but since it is an ongoing 50 basis points, that provides a 
good bit of additional room without creating us one of those 
places where we can tweak this without creating harm.
    I would note, the CFPB has started its review of the whole 
QM rule, as they are required to do on all their significant 
rules every 5 years. And this is--
    Mr. Heck. Thank you, both.
    In my 4 seconds left, let me just say thank you, Mr. 
Chairman, for the opportunity to use this hearing to say that 
we ought to be spending a whole lot more time in talking about 
how to meet housing needs and how to get housing starts up. And 
it would solve a lot of problems in this economy and for the 
average American.
    And with that, I thank you, sir, and I yield back.
    Chairman Luetkemeyer. The gentleman's time has expired.
    They have called votes, but we are going to try and get two 
more Members in before we leave to vote.
    Mr. Williams from Texas is recognized for 5 minutes.
    Mr. Williams. Thank you, Mr. Chairman.
    I want to thank all the witnesses for being here today and 
especially my fellow Texans for coming up here to D.C.
    I want to follow through on something Mr. Barr said 
earlier.
    Ms. Wade, you highlight the important role small business 
plays in economic growth, accounting for about half of the U.S. 
gross domestic product. Despite this importance, small 
businesses have struggled to secure credit since the passage of 
Dodd-Frank. I am a small-business person and I understand every 
bit of that.
    According to research by an analyst at the Federal Reserve 
Bank of Dallas using FFIEC data, small-business loans at U.S. 
commercial banks have declined 15 percent since 2008, even 
while total business loans have increased 33 percent. As a 
result, small-business loans have shrunk by almost 40 percent 
of the small-business loans portfolio in 2004 to 20 percent in 
2016.
    What has been the impact of reduced access to credit on 
small business? And how will increasing access to capital help 
small business?
    Ms. Wade. Thank you. As I said, one of the problems is that 
there is just a lack of demand, generally speaking, in the 
small-business community where they don't have the confidence 
in seeing opportunities to expand, grow their business or risk 
not knowing what business conditions will be 6 months, a year 
down the road. And they are not willing to bet their own money 
on not a solid economic foundation in many of their 
communities.
    So, the low borrowing levels is one of our main concerns. 
We did find, however, that there are more difficulties for 
those who are in high-growth small businesses, so those who 
have had over 50 percent growth in the last 3 years. Those 
businesses seem to be finding, on average, a more difficult 
time in accessing credit. And we are interested in looking into 
that further.
    That might be coming up against some of the regulations 
that are restricting community and smaller banks in lending to 
these businesses. And that is where a lot of our concern is 
focused in these more high-growth businesses that are having a 
more difficult time accessing credit.
    But in creating policies that are more business-friendly, 
those are the areas that we are focused on in allowing small 
businesses to grow and improve their business in reinvesting so 
that there is a strength in borrowing among the small-business 
community.
    Mr. Williams. All right, thank you.
    Mr. Heitkamp, in your testimony, you spoke about bank 
consolidation. Like many of the small businesses in my 
district, which you are familiar with, I, too, am a borrower. 
Can you tell me what these consolidations, these mergers mean 
to borrowers and communities locally?
    Mr. Heitkamp. Yes, sir. I think the mergers and 
acquisitions is really hurting the people trying to get credit. 
You see borrowers out there and today when you lose a merger 
out of a community bank or it leaves that town, that town 
doesn't have the access to capital. So a merger is a big issue 
and the access to capital and those people in those communities 
are not getting it. And so they are looking for other places to 
go online and other places, so it is not really driving what we 
need, real economic growth.
    Mr. Williams. Mr. Motley, what has happened to your banking 
services since passage of Dodd-Frank? And have you had to 
reduce some books of business?
    Mr. Motley. Have we had to reduce what?
    Mr. Williams. Have you had to reduce some accounts, some 
books of business?
    Mr. Motley. What has happened in our business since Dodd-
Frank is that we have increased our staff of compliance 
personnel dramatically by a factor of probably 10. We spend 
these days, whereas perhaps prior to the crisis we might have 
spent $10,000 to $15,000 a month towards compliance issues, we 
now spend $350,000 a month in compliance, refunding QC, quality 
control, areas. So it has dramatically increased our cost of 
business.
    In terms of have we had to turn business away, we never 
were a lender of those no-income, no-asset type loans to any 
significant extent. So when those products went away, it didn't 
affect us, we didn't really do those loans.
    Mr. Williams. And all that money that you had spent on 
compliance could have gone to customers to build a business, to 
hire people, put people to work, create more taxpayers.
    Mr. Motley. It could have reduced the cost to consumers, 
because when banks incur increased compliance costs or costs 
generally, those costs are going to get passed on to the 
consumer one way or the other. So the cost of origination, if I 
could just take another second, has grown from $1,900 in 2004 
for us to over $6,500 in 2016. The cost to originate a loan is 
dramatically higher than it used to be prior to the recession.
    Mr. Williams. Thank you for your testimony. And I yield 
back.
    Chairman Luetkemeyer. The gentleman yields back.
    We are going to try and get one more Member in here before 
we recess.
    Mr. Loudermilk from Georgia is recognized for 5 minutes.
    Mr. Loudermilk. Thank you, Mr. Chairman. And I will try to 
be very brief with this.
    Mr. Heitkamp, last year at the end of the year, statistics 
showed that banks with over $100 million in assets saw a growth 
in loans, but smaller banks saw a decrease. From a State that 
has lost a lot of community banks, we have some counties in our 
State that have no bank branch at all of a smaller community 
bank. There has been a significant impact on Georgia. And with 
this, it makes me just wonder, why are we seeing this trend of 
larger banks are seeing an increase? And what are the 
challenges of our smaller banks, our community banks?
    Mr. Heitkamp. Yes, I think you are seeing the consolidation 
that is making the decision if you are a small community, and I 
think $100 million is even pretty small today. They are saying 
you need to be half-a-billion dollars to survive the new 
economic data or the regulatory burden that you need to survive 
the increase costs.
    Mr. Loudermilk. So it goes back to the regulatory burden 
that we are putting on these guys?
    Mr. Heitkamp. Yes, you are looking at our costs have gone 
up 300 percent in the last 3 years on regulatory costs.
    Mr. Loudermilk. And what I am getting from our community 
bankers is, when I am asking about, under the CHOICE Act and 
Dodd-Frank, what is it that we need to correct? The answer I am 
getting is death by a thousand cuts. It is not just one thing, 
it is a death by a thousand cuts. Could you elaborate a little 
bit more?
    Mr. Heitkamp. I think all these things you are talking 
about, death by a thousand cuts, every time you turn around you 
are getting 1,200 pages of regulation or other, you look at 
HMDA, you look at increased data points there, you are looking 
at the CFPB, you are looking at TRID, all the new things that 
Washington is putting out to us. We can't take care of the 
customer and take care of those costs, so you give to the 
customer because you have to take care of the other things 
because of regulations.
    Mr. Loudermilk. Okay, thank you.
    Mr. Motley, one of the things that I have also heard coming 
from the banks is, tell us what the rules are, just give us 
what the rules are. I remember when I was in the Air Force, we 
played a game of softball. But what we weren't told is what the 
rules are and the rules continually changed, so it was 
impossible for you to win because every time you went to bat 
you may be given one pitch, you may be given four pitches.
    And I equate what they are saying, especially in the 
mortgage industry, to we don't know what the rules are that we 
need to play by because they are evolving. Does that kind of 
hit where some of the problems are?
    Mr. Motley. Yes, sir, it is. And it goes back to my earlier 
statement. When you don't know what the rules are, you are 
going to try to take the safest route and you are going to stay 
away from the edges of the credit box. Because the penalties 
for making a mistake under the know before you owe rule or 
really any of the QM rules, the ability to repay rules, all of 
those rules carry truth in lending liability. And that is 
significant.
    And so when we are not clear on what the rules are, we are 
going to pull back. We can quantify credit risk, we can 
quantify rate risk, we cannot quantify regulatory risk. And 
that is why we need to ask for and I think we should expect to 
get clear, written, reliable guidance from the CFPB. We get 
that from the prudential regulators, we should be able to get 
it from the CFPB.
    Mr. Calhoun. And, Congressman, if I may add just for the 
record that last year on the so-called TRID or know-before-you-
owe, the CFPB did issue a notice that they would engage in 
formal guidance. They solicited comments, which I know MBA 
submitted, we did, too, and you should expect in the 
forthcoming months, if not weeks, that there will be further 
official TRID guidance to help provide that clarity, because we 
agree that unnecessary uncertainty has a high cost.
    Mr. Loudermilk. Mr. Motley, how long have we been asking 
for this directive?
    Mr. Motley. Since the rule came out.
    Mr. Loudermilk. Okay. So it has been quite a while, very 
slow going.
    I asked one of my lenders or one of our small banks back 
just a few weeks ago, could you give me some incidences of 
where you haven't been able to loan money? And they said, we 
could give you many instances. For instance, there was a guy 
that we had loaned for a mortgage many times and he paid, has 
always been current, and he came and asked for a loan for a new 
home and we had to deny him, but we really couldn't tell him 
why.
    And I believe it was because exactly what you were saying, 
is they are taking the safe route because they don't know what 
the rules are. And even though these directions may come out, 
will they change again?
    So with that, Mr. Chairman, I yield back.
    Chairman Luetkemeyer. The gentleman yields back.
    With that, we are going to stand in recess until after 
votes. I think there are about 4 votes, so we should be back 
within, oh, 35 to 40 minutes, so sometime between 3:50 and 
4:00. So if you will bear with us, we should return.
    We stand in recess.
    [recess]
    Chairman Luetkemeyer. Let us go back to work. Again, thank 
you for your indulgence. I apologize for the interruption, but 
we actually had to go to work a while ago. So thank you so much 
again for your patience.
    The gentleman from Tennessee, Mr. Kustoff, is recognized 
for 5 minutes.
    Mr. Kustoff. Thank you, Mr. Chairman.
    I am a recovering attorney and a former U.S. attorney, but 
also a former bank board member for a community bank, so I 
appreciate the comments and the testimony that many of you have 
offered.
    Mr. Heitkamp, if I can, going back to you, since the 
implementation of Dodd-Frank, in my opinion, we have seen a 
one-size-fits-all regulatory regime, regardless of a bank's 
size, that has had a profound impact on a bank's ability to 
lend.
    Where I am from in west Tennessee, I hear of many instances 
where long-time customers of their banks or financial 
institutions are unable to secure a personal or business loan 
due to the stringent requirements of Dodd-Frank. Problems like 
these as we have heard today are happening all too often and 
consumers are finding it more difficult to access credit when 
they need it the most.
    If you could, in your experience, pre-Dodd-Frank and now 
post-Dodd-Frank, can you talk about the type of individuals 
that, just subjectively or anecdotally, you could loan to 
before the implementation of Dodd-Frank and compare that to 
today?
    Mr. Heitkamp. I will give it a shot, sure. I think looking 
back, I think I just did this in a talk the other day, talking 
about what I did 10 years ago. Ten years ago, I took care of my 
customers, grew my business, and tried to grow my bank.
    Today, most of my time is spent trying to deal with new 
regulations or old regulations and how it is going to affect my 
bank. So I think that kind of sums up what you are talking 
about. But from a customer standpoint, we talked about DTI, we 
talked about the loan requirements that you have to do, the 
hurdles you have to get over, for good customers, that you are 
looking for those additional regulatory requirements that have 
been put on us because of Dodd-Frank.
    And I think that is our challenge is trying to help those 
customers that you want to help and trying to figure out now 
how to do it. And sometimes you just can't.
    Mr. Kustoff. In my area of the world, and I talked to some 
of the bankers around west Tennessee, in rural west Tennessee. 
I talked to a banker in rural west Tennessee, and I have this 
in quotes because we took it down verbatim, he told us that a 
customer of his tried to refinance his primary residential 
loan. These are his words, ``When we requested verification of 
the income, the customer could not provide it because they had 
lost their job in the past year. However, for the past 12 
months the customer had made regular, timely payments on the 
loan. He managed to engage in what he called odd jobs and make 
the payments, but because of the requirements of the ability to 
repay, our bank was unable to refinance the loan for this 
specific customer.''
    And if I could, Mr. Motley, maybe going to you, I believe 
you had testified that in fact mortgage credit has tightened, 
and the impact that it is had on customers, your customers, 
particularly low- to moderate-income borrowers, minorities, and 
first-time home-buyers. Can you elaborate, if you could, on the 
various factors that have led to the constriction of credit in 
general?
    Mr. Motley. Was that directed to me? I'm sorry, I couldn't 
hear you.
    Mr. Kustoff. Yes, sir.
    Mr. Motley. Okay. Particularly in multicultural 
communities, it is common for families to pool their funds. 
That is not a standard way of documenting your ability to repay 
using the Appendix Q. Were it not for the patch, the GSE patch, 
the temporary patch, we would be very challenged to make the 
kinds of loans and the number of loans that we have made 
because the debt-to-income ratio that we have documented based 
on the information that we have would be well-above 43 percent. 
And yet we would see people who have perhaps made that housing 
payment before, the housing payment that they are proposing to 
have is equal to or maybe even less than, but it might still be 
over that 43 percent level.
    It is going to be more difficult when that patch goes away 
in 2021 if we don't make some modifications to what the 
definition of a QM is. And so we propose some minor 
modifications, some tweaks that allow lenders to use 
alternative underwriting decisions and use some other 
alternative underwriting methods to demonstrate the ability to 
repay without the very prescriptive rules that are in Appendix 
Q and specifically the 43 percent debt ratio.
    So there are a number of different prototypes, if you will, 
or borrower types that I could go into, people who are recently 
out of college, for instance, who are trying to get into their 
first home, but they don't have a history of earnings, that 
type of thing is problematic under QM.
    Mr. Kustoff. Thank you very much.
    And I believe my time has expired. Thank you, Mr. Chairman.
    Chairman Luetkemeyer. The gentleman's time has expired.
    With that, we recognize the ranking member of the 
subcommittee, the distinguished gentleman from the ``Show Me'' 
State, Mr. Clay, for 5 minutes.
    Mr. Clay. Thank you, Mr. Chairman.
    Let me start with a question for both Mr. Heitkamp and Mr. 
Calhoun.
    Some suggest the declining rate of community financial 
institutions in this country is a recent phenomenon and one 
that started with the enactment of Dodd-Frank. And yet, the 
facts once again do not support this.
    In the decades leading up to 1980, the total number of 
commercial banks fluctuated around 13,000 to 14,000. Since that 
time, there has been a steady decline at a rate of about 300 
per year to just under 6,000.
    More than 80 percent of banks that exited the market over 
the past 30 years did not fail, but rather merged or 
consolidated with another bank utilizing interstate branching 
laws that were passed long before Dodd-Frank.
    And, Mr. Heitkamp, aren't smaller banks being gobbled up by 
larger banks as a result of the institution's prosperity and 
success? Is that how you see this?
    Mr. Heitkamp. No, sir, I don't. I see it as kind of the 
opposite. I think when you start looking at mergers and 
consolidations, I think the banks that are looking for that are 
primarily because of regulatory burden that they are putting 
on. They cannot survive and their costs are going up, so it is 
driving them to make a decision for viability and for their 
shareholders to sell their bank. And so you are seeing mergers 
driven, in my opinion, based upon that decision.
    We struggle with it ourselves. We are a $213 million bank. 
Does it make sense for our shareholders to keep absorbing and 
seeing our income go down?
    Mr. Clay. Thank you for that response.
    Mr. Calhoun, how do you see it?
    Mr. Calhoun. Well, a couple of points here. The biggest 
impact on community banks has been the fallout of the Great 
Recession. We saw almost 500 community banks shuttered. They 
were the primary banks that got closed for financial 
difficulties as a result of the Great Recession.
    And then I think you have heard from many witnesses here, 
the two biggest challenges in small-business lending are, 
first, reduced demand because those businesses are still 
recovering from the Great Recession, and one that hasn't been 
mentioned yet, and that is extremely and artificially low 
interest rates make it extremely difficult for us as small 
lenders to take deposits and lend and make a living off the 
difference when interest rates have been depressed so low.
    That said, let me be clear, as I said in our written 
testimony, we both support a two-tier approach to the 
regulation and an expansion of the existing measures that have 
been taken in that regard. And there are ways that can be done 
carefully.
    I think the points that Mr. Green was making, don't throw 
the baby out with the bathwater because, again, the biggest 
stress was that the housing boom took away so much of our 
business from the unsustainable lender that the witnesses up 
here were not willing to engage in. And the reckless lenders 
took our business away and then crashed the economy, and we 
took the hit for that and we are still feeling that pain.
    And so sustainable, robust growth is what our goal is here. 
And with some small changes in these places, you can make a 
measurable impact there.
    Mr. Clay. Thank you for that response.
    Mr. Motley, you brought up some interesting scenarios in 
your testimony about what could help the mortgage industry and 
our housing industry, in effect. One would be the repay rule 
that the CFPB has, the qualified mortgage. The Democrats have 
proposed to exempt community banks from qualified mortgage 
rules provided that their mortgages are held in portfolio. 
Would you comment on that?
    Mr. Motley. I think that, first of all, we appreciate the 
idea or the concept that there might be some attempts to 
stimulate lending. Portfolio lending is an important factor for 
banks as investments. But I caution the use of portfolios to 
add loans that are not standard. The QM rule could be adapted 
for all lenders so that the consumer knows what to expect when 
they go to a bank, whether it is a small bank, a community bank 
or a large bank. The rules of the qualified mortgage, I 
believe, should be the same for everybody.
    Mr. Clay. Thank you so much.
    My time is up.
    Chairman Luetkemeyer. The gentleman's time has expired.
    With that, we go to the gentleman from Florida, Mr. Posey, 
for 5 minutes.
    Mr. Posey. Thank you, Mr. Chairman.
    Mr. Motley, you mentioned in your written testimony that in 
recent years the Department of Justice has aggressively pursued 
enforcement actions under the False Claims Act against lenders 
participating in the FHA insurance programs. I certainly 
believe that if you defraud the Federal Government, you ought 
to be held accountable. And in regard to the FHA, we all want 
to ensure that FHA is protected from risky loans and is on 
solid financial footing.
    But it is my understanding that the Department of Justice 
has now sued and settled with nearly 30 companies for 
violations of the False Claims Act. All of these companies were 
accused of misrepresenting the quality of the loans to the FHA. 
Those are pretty serious charges.
    If the Department of Justice is finding issues this 
widespread with so many of the program's participants, and I am 
assuming that these were not intentional acts of crime, 
shouldn't HUD step in and try to address the problem? In other 
words, instead of shooting for settlements, it seems like it 
would make more sense to ensure everyone knows how to comply 
with the regulations so we can actually prevent real harm from 
happening in the future.
    I think if there were intentional criminal acts, those 
people ought to go to jail and we ought not be making 
settlements. That is how you really change behavior for the 
future, but I'm assuming that is not the case.
    Mr. Motley. I think the False Claims Act has been utilized 
as a sledgehammer to kill a fly in a lot of, in many cases 
because many of our members have been subjected to false claims 
acts or errors in calculation of income, perhaps a minor 
omission, non-intentional omission of a deposit or some credit 
issue that we were aware of when the loan was made, and yet 
when that loan, if it goes into default, it does go into 
default, and then suddenly the lender is being faced with the 
False Claim Act, and so now not only do you have the loss of 
the loan and you have to indemnify HUD, but you also have 
treble damages. So the penalty doesn't fit the crime in a lot 
of these cases.
    Now, we are not advocating, and let me be very clear, if a 
lender is guilty of fraud or a conspiracy to violate the rules 
on a regular basis, then that is an appropriate use of the 
False Claims Act. But for one-offs, for errors in processing, 
for mistakes that are going to happen, the rules are very, very 
prescriptive, you start thinking about the loss mitigation 
protocols that FHA requires, which are not standard, like Mr. 
Calhoun was talking about earlier, they are different than the 
agency's protocols for loss mitigation, we need to standardize 
those loss mitigation protocols.
    But if we make a mistake in an FHA loss mitigation process, 
we haven't experienced it, we have other members who have 
experienced it, that becomes a false claim when the loan goes 
into default and they file a claim. And so that sort of 
mismatch between the crime, the so-called crime, and the 
punishment needs to be right-sized. And the False Claims Act, 
we believe, should be used in a very limited, specific when 
they are egregious activity.
    Mr. Posey. Yes, I was going to ask you what steps HUD can 
take, and I think you have already said it. Just probably be 
much clearer and delineate exactly what is and what is not in 
bounds or out of bounds on the False Claims Act.
    Absent HUD providing clarity, how will the DOJ's aggressive 
enforcement actions affect the lender participation and, more 
broadly, access to FHA credit? Have you seen a negative impact?
    Mr. Motley. We certainly have seen an impact. A number of 
lenders, one that I am sure you have heard of, Jamie Dimon, has 
been very vocal in his concerns about participation in the FHA 
program. He has said, ``We can't be in the FHA program, the 
risks are too great. And the reason for that is that there is 
not a good protocol; what we need is a taxonomy of rules and 
procedures in the FHA guide that will allow lenders to have 
clarity and certainty in the way that they participate in FHA 
lending.''
    Mr. Posey. Yes. Do you know offhand, when they make these 
stipulated settlements, do you know where the money goes? Do 
you have any idea?
    Mr. Motley. I'm sorry?
    Mr. Posey. I am curious if you know where the money goes in 
these stipulated settlements when they make them.
    Mr. Motley. I don't know specifically. I think it goes into 
the coffers of the Federal Government.
    Mr. Posey. Yes, I am wondering if they are making bounty 
hunters out of DOJ. I just have to wonder about that.
    Thank you, Mr. Chairman. I see my time is up.
    Chairman Luetkemeyer. The gentleman's time has expired.
    I now recognize Ms. Moore for 5 minutes.
    Ms. Moore. Thank you.
    I just wanted to ask the panel--I know that smaller banks 
were not the cause of our financial meltdown, and excuse me if 
I ask questions that have already been answered, but we have 
seen banks become more profitable, including smaller banks.
    And so I guess I would want to hear from you all what your 
thought is about analyses that suggest that part of the problem 
for smaller banks has been an effort to try to develop growth 
at a very fast pace. And a lot of the losses were due to 
aggressive commercial lending because in Dodd-Frank, of course, 
we exempted these banks from the CFPB, exempted and gave them 
sort of a tiered structure with regard to regulation.
    So I was wondering if you could just share with us what 
lessons perhaps the smaller banks have learned with regard to 
rebounding from the crisis, because I am not sure all of it is 
because of Dodd-Frank.
    Mr. Heitkamp. I will take a stab at that. I am not sure 
rebounding is the right word, though, because I think earnings 
are a thing that you can look at and say, okay, does that 
balance everything but not really, you have regulatory issues 
that we have been dealt with since Dodd-Frank, too, that is 
adding in there.
    So when you start taking and looking at earnings as a 
whole, are you looking at larger-bank earnings? Are you looking 
at community bank earnings? I know they have gone up. But in my 
case, my earnings have not gone up. I am dealing with a lot 
more regulation because there is a lot more expense I am having 
to deal with today than I did before Dodd-Frank.
    Ms. Moore. But you would also stipulate, you would also 
recognize that a lot of the regulation for larger banks, 
smaller banks have been excluded from it, and credit unions.
    Mr. Heitkamp. You are saying, ``excluded.'' I am not sure 
we have been excluded. Maybe there has been a box that we fit 
in, maybe we get 50 basis points difference or something for 
exclusion. But really as a whole, we are still subject to HMDA, 
all the different things that we are having to do in a greater 
degree.
    Ms. Moore. So the tiering, you don't see that what we have 
done is adequate enough? Is it the wrong approach totally?
    Mr. Heitkamp. I don't think it is the wrong approach. I 
just think it is not enough for small community banks and what 
we are trying to do. I think that we need to push back and say, 
hey, we need some real regulatory relief that will help us, 
that doesn't add onto what we are currently doing. All we did 
is get 1,200 new pages of regulation in each of the different 
regulations that came out of Dodd-Frank.
    Ms. Moore. I guess what I would like to hear from the panel 
is whether or not you think that Dodd-Frank had a useful 
purpose. And obviously, none of you are Wells Fargo or some of 
the other actors that we have had to fine and there was a 
tremendous amount of mischief leading up to the financial 
crisis.
    And so we have not wanted to penalize those actors that 
were not a part of it, but I guess I am concerned about whether 
or not you all think that there is something in between just 
sort of jettisoning Dodd-Frank, if there is some concrete 
improvements that we can make and not just say we don't need a 
regulatory framework.
    Mr. Motley. If I may, the MBA is not proposing that we 
jettison Dodd-Frank at all. There are a few things that we 
would like to see happen to make the QM rule a little bit more 
inclusive for all borrowers, low- to moderate-income borrowers 
who are stifled in many cases because of the treatment of 
points and fees and the limited cap on that. So we would like 
to see an expansion of that. We would like to see some 
relaxation or some differences in how we interpret the debt-to-
income ratio. So we are--
    Ms. Moore. So do you think this has an impact on minority 
borrowers, who have suffered a lot?
    Mr. Motley. It has a definite impact on minority borrowers 
because of the--and I mentioned earlier before you were here. 
What we find in multicultural families is that families will go 
together, they will pool their resources in order to afford a 
house. That is often very difficult to document and, in many 
cases, it could be over that 43 percent debt-to-income ratio.
    If for some reason that loan is not eligible for Fannie 
Mae, then we can't go over 43, it will be an illegal loan. So 
unless we wanted to keep it in portfolio, I suppose you could 
do that, but then you have the risk of a loan that is not 
nearly as liquid. It is frowned upon by the regulators. So 
tweaks to the QM definition would be the thing most helpful, I 
think, in expanding the credit box.
    Ms. Moore. Thank you so much.
    My time has expired. And thank you for your indulgence, Mr. 
Chairman.
    Chairman Luetkemeyer. The gentlelady's time has expired.
    Mr. Heitkamp is going to leave here in a second. Before he 
leaves, there is one question that hasn't been asked yet. Ms. 
Moore went to part of it, and I want to sort of jump in here 
quickly and get a clarification before you do leave, Mr. 
Heitkamp, and that is with regards to the subject of 
profitability of the community banks.
    I think from the standpoint that you have seen some 
earnings go up, I think the point that you made a while ago, 
and we need to clarify it just a little bit further, is the 
fact that small banks, say $250 million and under, are the ones 
that are really, really feeling the pinch of the regulatory 
costs.
    The FDIC did a study a few years ago which showed that they 
didn't anticipate banks under $250 million even being around in 
5 years. And so for clarification purposes, would you agree 
with that statement or like to expound on it?
    Mr. Heitkamp. Definitely, I think that is really important 
to talk about today.
    Chairman Luetkemeyer. So you are looking at banks with 750 
to a billion, they are doing okay, but the littler guys are the 
ones that we are talking about.
    Mr. Heitkamp. I would even say $500 million and below, they 
are really suffering. I think I heard a study that was, like, 
$350 million, you had to be that size to survive today.
    Chairman Luetkemeyer. Okay, very good. Thank you.
    I thank the subcommittee for their indulgence.
    Mr. Heitkamp will be leaving here shortly.
    But we are going to go to Mr. Tipton next. The gentleman 
from Colorado is recognized for 5 minutes.
    Mr. Tipton. Thank you, Mr. Chairman, that is a great segue 
actually to the questions that I had.
    I come from a small community. And, Mr. Heitkamp, it 
certainly captures my attention having participated in a small 
community bank, when you are talking about a 300 percent 
increase in terms of some of your regulatory costs.
    I had one of our small community banks contact me several 
months ago and said good news on the employment end, we have 
made three new hires, the bad news is they are all for 
compliance. And those are the real challenges really when you 
say that our small community banks are really facing.
    There was a recent Bloomberg News data which showed that 
loans of a million dollars or less to Main Street-style 
businesses has fallen to 20 percent of total business credit 
from 35 percent in 2004. Consumer loans as well?
    Mr. Heitkamp. Yes.
    Mr. Tipton. And have you seen an impact on small-business 
formation? That is one thing I think that we forget in the mix. 
Since we have been keeping records for the first time, we are 
seeing more small businesses shut down than there are new 
business startups. And as our chairman is often noted as 
saying, it is hard to have capitalism without capital. You are 
the liquidity in the marketplace.
    Are you seeing that with your small businesses in Texas?
    Mr. Heitkamp. Yes, we are definitely not seeing as many 
applicants as we have had in the past. I think the people are 
sitting on the sidelines, seeing what the regulatory issues are 
and how they are going to impact them before they invest those 
capital dollars. And so I think that is a deterrent to seeing 
small business grow.
    Mr. Tipton. When you are seeing some of the difficulties of 
being able to make a loan that perhaps you would like to be 
able to make, but regulatorily you are not allowed to make, do 
you see them turning to alternative financing? And what might 
that look like?
    Mr. Heitkamp. Yes. I think if they can't get the loan from 
a commercial bank, they are looking for it in other places. 
Sometimes they are going online, you see these online lenders, 
things like that, but it is really not a good alternative for 
them because at the end of the day it is going to come back to 
haunt them.
    Mr. Tipton. Higher costs?
    Mr. Heitkamp. Higher costs.
    Mr. Tipton. Higher costs and perhaps more business failure 
there.
    In your testimony you advocated for regulatory reform that 
would require the Federal financial regulators to conduct a 
cost/benefit analysis as part of the rulemaking process. How 
would this improve the final rules, in your opinion?
    Mr. Heitkamp. I think knowing, if you are doing the cost/
benefit analysis, to say, okay, does this make sense before you 
apply a rule or regulation and making sure we talk about it, I 
think that makes a lot of sense for us to say how the effect 
will happen to that or what effect will become of that.
    Mr. Tipton. You are probably trying to get out and that is 
why we are all going to pick on you here in the short term.
    [laughter]
    Mr. Heitkamp. That is okay.
    Mr. Tipton. But we recently had Chair Yellen and a variety 
of regulators testify, and they have always noted the trickle-
down effect of regulations, but then they will cite that they 
are doing everything they can to be able to relieve that 
regulatory burden that people are facing.
    I talked to a couple of community bankers just a few days 
ago when they were in town and they were talking about the best 
practices ultimately trickling down. Are you seeing that real 
impact on you and impacting your ability to maintain that small 
community bank?
    Mr. Heitkamp. Yes, we are. The best practices are--I am 
worried about the new ones that is going to come down the road 
is looking at our small-business customers and the compliance 
they are wanting to put on small business and gathering data. 
And everything that you are hearing about that is starting to 
gear up. We have had regulators start telling us, hey, gear up 
for this. That is going to be additional costs and additional 
burden that we are going to have to do if we have to get into 
small-business lending like that.
    Mr. Tipton. Just one final question from me so that you can 
leave, if you must. What I think is really important for us to 
be able to understand is that community bank. When you are 
talking about the mergers, the acquisitions, it is always with 
the idea of being able to get the benefit of synergy of a 
larger entity. But what does a community bank, somebody that 
you are describing, somebody who lives and works there and 
understands the people that they are trying to be able to make 
loans to, what is important about that?
    Mr. Heitkamp. Oh, I think that is the key driver of a 
community, knowing the people that you deal with, you have the 
certainty of we have built that relationship over years, you 
can trust one another, that is hard to get and that is very 
valuable. And that is my opinion of community banking. That is 
why it is so important that we keep these guys.
    Mr. Tipton. Yes. Thank you, Mr. Heitkamp. I appreciate it.
    Mr. Motley, I would like to be able to ask just one 
question of you. You mentioned in your testimony the tightening 
of mortgage credit availability and the increase in origination 
and servicing costs.
    We have a bank in Westminster, Colorado, that told me their 
branch had to shut down the majority of their mortgage group, 
from 15 to 4 people, because the business model simply no 
longer made sense. According to them, they lost jobs because of 
the regulatory burden. It was too much.
    In your opinion, does the current regulatory framework for 
mortgage lenders balance safety with access to credit for 
customers?
    Mr. Motley. I think it can be improved upon. I think by 
making some tweaks in the QM rule, I think by providing 
clarity, written guidance from the CFPB, we can do a better job 
of expanding the credit box and allowing more people to qualify 
for mortgages.
    Mr. Tipton. Thank you.
    My time has expired. Thank you, Mr. Chairman.
    Chairman Luetkemeyer. The gentleman's time has expired.
    With that, we go to the gentlelady from New York, Ms. 
Tenney, for 5 minutes.
    Ms. Tenney. Thank you, Mr. Chairman.
    And I thank the witnesses for being here to testify.
    I had some questions for Mr. Heitkamp, or at least some 
issues.
    I, too, come from a small-business community, in rural 
upstate New York, where I actually own a small business in the 
area. And we have had many issues with access to credit. One of 
the problems we have is so many of our small businesses and 
smaller banks have been displaced because of regulations and 
just the huge amount of compliance that we have had to deal 
with in our business as well.
    Coming from New York State, which is one of the highest 
regulatory States, whether you are in banking, small business, 
high energy costs, taxes, you name it. If there is an unfunded 
mandate to send to our local governments or schools and our 
small-business community, New York will find it.
    [laughter]
    So part of that, a question I had, and I was going to ask 
Mr. Heitkamp, but I can put it to the panel or specifically 
would like to say something to address Ms. Wade because my 
family's business and dealing with financing. And one of the 
problems we have had is trying to get access to capital with 
banks because of the new regulations. And I find that some of 
the community banks are really not in our league anymore.
    And I just wondered if there is any evidence that you have, 
and I know you may have spoken on this, and I apologize, but I 
just wanted to hear it again, if there are other avenues that 
you have cited or indicated in your testimony where small 
businesses are going for credit if it is not to a banking 
institution. And if you could just highlight a couple of those 
that may be other alternative forms of credit as opposed to 
using a bank.
    Ms. Wade. Sure. Their primary source of funding for 
expansion or reinvestment in their business is the revenue of 
the business. So personal financing, savings, borrowing from 
friends and family if they are new, those are the main sources 
that they are drawing from. And then it is the bank that they 
have their primary relationship with is where they are looking 
to access lending.
    I think one of the areas that is frustrating for many small 
businesses in this new banking, regulatory scheme post Dodd-
Frank is the area of uncertainty, not knowing why they might 
not be approved for the full amount that they are asking for 
and not having a response from their bank representative being 
able to explain if it is paperwork that they are not filing or 
why they aren't accessing or why they are not able to access 
all their credit and not realizing that maybe having a 
relationship with a secondary bank might be important.
    But they certainly draw on credit cards. More are looking 
at online fintech lending options in accessing credit. But for 
the most part right now, it is most of their financing is 
coming from personal savings and revenue from their small 
business.
    Ms. Tenney. Right. Yes, you just described exactly the 
circumstance that I myself have been in, maxing out my own 
personal credit cards and getting a second mortgage just to get 
past some of the cyclical nature of the businesses that we are 
in.
    On the fintech, that is something that is becoming talked 
about often in Washington. And can you just tell me any 
thoughts you might have on regulation in the fintech space and 
how that would affect our small-business and banking community 
in your opinion?
    Ms. Wade. It is still a very small portion of lending for 
small businesses. More are becoming interested in accessing or 
learning more about what products are available through 
fintech. And one of our concerns is overregulating this area of 
financing before it develops into something that might be very 
helpful for the small-business community as they are maybe 
losing some of the relationships that they have with their 
small, local banks and are forced to bank with larger banks, 
that they have a less successful time accessing credit.
    So some of that, I think, is spilling over to the fintech 
arena. And making sure that is still a viable option is 
important.
    Ms. Tenney. So you are saying that the overregulation of 
the fintech business could be causing the inability to get 
credit on that side?
    Ms. Wade. We are worried, we are certainly concerned about 
overregulating of that industry where it wouldn't be a viable 
option for small businesses to access financing going forward.
    Ms. Tenney. Thank you. I think I am out of time.
    Thank you very much, I appreciate it.
    Chairman Luetkemeyer. The gentlelady's time has expired.
    The gentleman from California, Mr. Royce, is recognized for 
5 minutes.
    Mr. Royce. Thank you, Mr. Chairman.
    If I could just say to the panel here that combating money 
laundering and combating the financing of terrorism is 
obviously something we all agree is critical to protecting our 
citizens, protecting citizens throughout civilization. I am 
concerned, however, that we are misaligning our resources and 
hindering legitimate customers and businesses from accessing 
capital in some situations, and I thought I would just bring 
this up.
    At least one recent study by The Clearing House concluded 
that billions in bank resources, billions, are spent on AML/CFT 
compliance that have limited law enforcement or national 
security benefit. So clearly, the system as currently designed 
is outdated and is ineffective.
    And so my local banks tell me examiners are more interested 
in quantitative measurements, like the number of compliance 
officers that are hired, or the number of suspicious activity 
reports filed.
    And missing in that is a focus on the qualitative side, 
which would be results-driven risk management which identifies 
and catches bad actors. And we haven't seen much in the way of 
that.
    And so I was wondering if our remaining bank witness can 
comment on suspicious activity report filings and other rules 
and regulations and whether you think they are working. And 
also, are there ways to better foster cooperation and 
information sharing among banks or look at the beneficial 
ownership rules so that we can catch the bad actors while still 
facilitating access to capital and access to credit for small 
businesses?
    So I would just ask you, Mr. Motley, for your views on 
that?
    Mr. Motley. Thank you. I will try to briefly give you my 
thoughts on that. We are primarily a residential mortgage 
lender. We are a depository. We have eight depository branches 
in the Dallas/Fort Worth area. So we take retail deposits. We 
do savings accounts. We do traditional banking, but we are 
primarily a mortgage banking participant.
    But the AML rule really requires us to devote a huge amount 
of resources to managing it. We could probably meet and talk to 
every customer we have at least once a year and know exactly 
who our customer is. But this AML rule is pretty onerous. And 
we have to devote a single compliance person just to that one 
activity.
    We file suspicious activity reports whenever we run across 
it, we find that more on our mortgage side than we do on the 
depository side, because really we take great care in knowing 
who it is that is opening up an account with us.
    So for a bank like us, I think that rule is overbearing. 
And there could be some opportunity for some relief.
    Mr. Royce. I will ask you another question. Your bank 
services mortgages, so you are in a unique position to offer, I 
think, some perspective here on the proposed Basel III 
increases in the risk-weighting for mortgage servicing rights.
    So there would be really two points to you, and the first 
would be understanding that there is some volatility in these 
instruments as the interest rates change, do you believe the 
risk to your balance sheet necessitates higher capital 
requirements and different capital treatment?
    And the second question I would ask you is, what is the 
impact on your relationship with borrowers if you then are 
unable to hold onto the servicing rights on the mortgages that 
you originate? Maybe you can walk us through that.
    Mr. Motley. Thank you. To answer your first question, 
capital is important. Capital supports our business. We are a 
highly capitalized institution. We are at 21 percent of assets 
is our capital. And so we can support our mortgage lending 
activity, but Basel III will prevent us from growing that 
business that we have been in now for 65 years. We have 180,000 
customers. We like having those customers. We have a high 
concentration of mortgage servicing rights to capital. Under 
the Basel rule, that would be restricted down to 10 percent.
    And when that happens, that means we are going to have to--
one way to correct it is either grow a whole lot more capital, 
we are a private entity, that is not so easily done, we are 
also a family-owned bank. So the alternative is, is to let 
those mortgages run off or sell the mortgages to somebody else, 
to sell that relationship down the road to someone else. And 
one of the things that many of our customers tell is is they 
came to us because they wanted us to service their loan.
    Mr. Royce. So that does impact directly your relationship 
with them in the sense that this becomes the--
    Mr. Motley. It absolutely does, yes, sir.
    Mr. Royce. Yes.
    Mr. Chairman, thank you.
    Chairman Luetkemeyer. The gentleman's time has expired.
    We have a gentleman here today who is not a member of the 
subcommittee, but has a phenomenal background in financial 
services, and serves on the full Financial Services Committee 
and wants to participate in the hearing.
    Without objection, the Chair seeks unanimous consent for 
the gentleman from Arkansas, Mr. Hill, to be recognized for 5 
minutes to question the witnesses. Without objection, it is so 
ordered.
    The gentleman from Arkansas is now recognized. Welcome.
    Mr. Hill. I appreciate the chairman and the ranking 
member's indulgence. Thank you for that. It is always nice to 
have an interloper drift into your subcommittee, so thanks for 
letting me participate.
    Thank you, panel, for being with us, and sticking with the 
cause over this long afternoon.
    Chair Yellen testified before the Senate and the House in 
the last couple of weeks and was just emphatic that there is no 
lending problem in our country, that lending is at an all-time 
high and that small-business people, Ms. Wade, are not 
complaining about access to credit. In fact, she says that only 
less than 4 percent of small businesses say they have no access 
to credit.
    Senator Warren described that was the real facts and that 
anyone who disagreed with Chair Yellen was in fact proposing 
alternative facts.
    So, Mr. Chairman, I would like to enter in the record some 
alternative facts, an article entitled, ``Why We Must Base the 
Banking Regulation Debate on Real Data,'' by Paul Kupiec from 
AEI.
    In that article, it says that the Federal Reserve's own 
data shows that small-business lending is 14 percent below pre-
crisis levels from $700 billion in 2008 to $600 billion today.
    The Fed's own research shows that smaller banks play an 
out-sized role in providing small-business credit. And without 
effect, the largest banks have not filled the lending gap. The 
dollar volume of small-business loans made by banks with more 
than $10 billion in assets declined by 5 percent over the same 
period.
    So I would like the panel's views on commercial paper 
markets in this country before the crisis were $2 trillion 
weekly; now it is about $900 billion. So it is my view that one 
of the biggest contributors to this CNI loan number up there 
are loans to the biggest companies in our country, our Nation 
that used to finance themselves through commercial paper.
    Does anyone have a view on that?
    Ms. Wade?
    Ms. Wade. We have certainly seen low borrowing levels. That 
is the missing component when folks talk about the 4 percent 
not being able to satisfy their borrowing needs is that there 
aren't borrowers as we would normally see in an expansion.
    The reasons that there aren't as many borrowers, they don't 
feel it is a good time to expand their business. They aren't 
optimistic about business conditions in the next 6 months and 
they are not willing to risk their profits and resources in 
investing in their business without a full understanding that 
the economy is going to grow at a rate that they will be able 
to pay back these loans and use the resources effectively. So I 
think that is one of the biggest missing components in the 
conversation for small businesses.
    And then, again, for those who are seeking credit and are 
able to access loans, not understanding what is asked of them 
from the small-banking community or the small banking 
community. For the small banks having that level of 
uncertainty, when there is uncertainty in the small banks and 
there is uncertainty in the small business, it is a terrible 
circumstance to facilitate growth in the small-business 
community and grow their businesses.
    Mr. Hill. We have certainly seen that in my district where 
we only, since the summer of 2007, only have 1,300 more people 
employed in my congressional district than we did in July of 
2007 and only 5,000 more people in the workforce. So it is a 
very slow growth, as you point out, recovery, so there are not 
very many prospects.
    I want to talk about TILA-RESPA, Mr. Motley. The Urban 
Institute thinks that there would be about 5 million more 
mortgages made if we didn't have the combination of TILA-RESPA, 
QM, ability to repay in that period. And if you look at S&P 
data, home equity loans since 2011 have declined 3 percent per 
year in that period of time.
    And there is no doubt that one of my constituents in my 
district reported that just over the last 3 years, his 
qualified mortgage loans since 2013 have dropped 15 percent a 
year in eligible credit because of the rules.
    What do you think we can do to improve TILA-RESPA? And I 
know you have already put on the record ability to repay and 
QM. So what are your thoughts on TILA-RESPA?
    Mr. Motley. The penalties of failing to execute the TRID 
rule disclosures properly can be catastrophic for a small 
lender because that loan is going to end up being most likely 
non-salable, not going to be able to be delivered to another 
investor, private investor.
    While Fannie Mae and Freddie Mac don't regulate 
disclosures, they do expect lenders to follow the rule. And 
without Fannie Mae and Freddie Mac and the GSE patch that we 
have right now, lenders would be hurt quite badly because the 
rules are so specific. Investors are reluctant to buy non-QM 
loans because of the penalties that are associated with it.
    So I think that what we could do to improve upon it, first, 
is to provide better written guidance that can be relied upon 
by the CFPB. I think that would be the best thing we could do. 
And then the second thing we could do is to expand in a 
moderate way the definition of a QM loan specifically as it 
impacts low- to moderate-income borrowers.
    Mr. Hill. Thank you, Mr. Chairman. Thank you for the time, 
Mr. Chairman.
    Chairman Luetkemeyer. Thank you for joining our 
subcommittee today.
    And with that, we are at the end of our hearing, and I 
would certainly like to thank our witnesses. We had a great 
panel today, with a lot of great information.
    One point of clarification, Mr. Motley. In your testimony, 
you talked about the increased cost of doing a mortgage loan. 
And my calculations said that it increased about 70 percent in 
the last 7 years. Would that be pretty close?
    Mr. Motley. That would be pretty close, yes, sir.
    Chairman Luetkemeyer. Just rough ballpark figures there. 
That is breathtaking. If you look at that cost having to be 
passed on to consumers, it is a significant enough cost that I 
am sure that it makes a difference to some people's ability to 
even take out a loan. So I thank you for that information.
    Also, I know during the hearing, points were made with 
regards to the Community Reinvestment Act, the Bank Secrecy 
Act, and appraisals. A lot of you made points on those three 
things. And those are going to be items that we are going to 
talk about in succeeding hearings. They have been brought to my 
attention by a lot of other banking groups, people in the 
financial services industry, that there are concerns, problems, 
issues with those that we need to take a look at.
    And so we appreciate your testimony along those lines 
because, again, it points out that I think your testimony shows 
that there is an interest and there is a problem there that we 
need to take a look at. So I thank you for that as well.
    But again, thank you for your participation here. It has 
been great.
    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 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    And with that, the hearing is adjourned.
    [Whereupon, at 4:41 p.m., the hearing was adjourned.]






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