Top 3 From the Chairman's Desk

In this month's edition of Independent Banker, ICBA Chairman, Preston Kennedy shared his top three concerns facing community banks.

1. The Federal Reserve's role in real-time payments.
2. Housing finance reform.
3. Credit union poaching of community banks.

Below, allow me to interpret this from banker talk into a more understandable and applicable version of how it may affect your financial life.

First, from CFO.com - "In a long-awaited move to speed up the U.S. payment system, the Federal Reserve has announced it will develop a real-time service that would eventually link more than 10,000 banks and credit unions across the country." It appears that for the next 4-5 years, small banks won't be playing on a level field with the big boys as there will likely be a tiered system of payment processing from the Fed. This won't affect most people's daily activities as transactions continue to increase in speed.  Just realize that the smaller companies and community banks you're used to working with are fighting an uphill battle to bring you friendly, personalized service at the same speed the federal government has permitted larger companies to exceed. As Kennedy shared, "The nation's largest banks should not be the sole benefactors of any changes."

Second, there is ongoing discussion regarding the upcoming expiration of the "QM (Qualified Mortgage) Patch," a temporary rule that allows government sponsored entities (GSE) Fannie Mae and Freddie Mac to exceed the maximum allowable debt-to-income (DTI) ratio allowed. This ratio is calculated by dividing your monthly debt payments (including home insurance and taxes) by your gross monthly income. Currently, this ratio for traditional lenders is capped at 43%. In full disclosure, the CFPB was gracious in this patch by allowing "small creditors" the ability to exceed the maximum allowable DTI ratio as well, as long as it remained "reasonable." Working in a small town and small community bank, and seeing the most recent housing crisis first hand, I have been engrained with a conservative approach to mortgage lending. I do not want to see DTI ratios go to lengths that could jeopardize banks, housing markets, or families. However, there are factors that make drawing a hard and fast line in the sand risky, unnecessary, and in some ways foolish.

The threat of home price declines along with limited financing would put the entire country's housing market at risk. This could have waves of imact across banks, realtors, and many other industries. It would impose unnecessary restrictions on borrowers with other viable factors to sustain their mortgage debt. Maybe it's a borrower with a working spouse who has poor credit and can't be on the loan. Maybe it's a borrower who's income is steadily increasing or wants a shorter term mortgage than their DTI would permit. It's potential harmful impact to limit the amount of money people are allowed to spend would seem foolish. The patch or adjustment must take into account factors such as total discretionary and other household income as well as others like the length of the loan, LTV, and more.

Lastly, and this has been a pet peeve of mine as well (you can read more in the blog link below), credit union's unfair poaching of community banks.

http://growinupgregory.blogspot.com/2018/06/a-level-playing-field-banks-vs-credit.html 

Credit unions were originally created to provide financial services to people in unserved or underserved areas. However, in most locations, this need no longer exists.  They have been granted tax exempt status since 1916 - that's over 100 years of tax free income allowable growth. If they aren't sustainable by now, they likely never will be. Yet, in market after market, and town after town, credit unions and banks are down the road, across the street, or next door even, competing for the exact same identical customers. Look at the quote earlier in this article from CFO.com! All the while, banks are paying federal income taxes while hard-working Americans continue to subsidize (no other way I can frame it) tax exempt credit unions. Again, if you read my blog link, I don't blame credit unions, their members, or employees; I wouldn't pay taxes if I didn't have to either. I blame Congress for, at best - turning a blind eye to the situation OR at worst - benefiting from credit union membership financially or through lobbyists. What were once much needed financial institutions to serve rural areas and mill towns, now only require $5 and a valid ID.

Off the wall thought that I'll toss out to Congress for free - what if we applied the income tax to businesses like credit unions and leveraged that money to:

1. Reduce personal federal income taxes on individuals which would likely increase spending and stimulate the economy.
2. Begin using those funds to reduce the nation's deficit and debt, beginning the process of freeing our children and grandchildren from the burden of debt we are putting on them.