A measure to rollback escrow regulations on community banks advanced the House this week.
The Community Institution Mortgage Relief Act (H.R. 3971), sponsored by U.S. Rep. Claudia Tenney (R-NY), is designed to provide relief from regulations that have increased the cost of servicing loans. However, the bill would not block banks from offering escrow services if they still want to do so.
The legislation is cosponsored by Reps. Brad Sherman (D-CA), Roger Williams (R-TX), David Loebsack (D-IA), and Pete Sessions (R-TX).
“Costly escrow regulations have continued to harm community lending institutions,” Tenney said. “With smaller staffs and significantly less resources than larger financial institutions, community lending institutions are often unable to bear the costly burden of maintaining escrow accounts for their customers. Mandating that all institutions follow these escrow requirements raises the cost of credit for borrowers who can least afford it while harming small local institutions. In rural areas like the 22nd District, consumers and small businesses rely on relationship lending with local institutions. If these regulations continue, mortgage-lending services will be consolidated within larger institutions which will hurt our family farmers, small business and lower-income borrowers who depend on their existing relationships with these community intuitions to access capital.”
Currently, the Truth in Lending Act requires creditors to hold escrow accounts on mortgage loans, which is costly and burdensome. It has forced banks to sell off the loan to larger institutions or mortgage insurance companies that have the resources needed to manage escrow requirements. Tenney said the bill would help reverse that trend by lowering the cost of credit and rolling back escrow regulations that drive community banks out of the mortgage lending market.
“This bipartisan bill will ensure that small institutions can continue to lend to their communities,” Tenney said. “I’m grateful to Chairman Hensarling for his leadership in working to pass this important bill, and I look forward to continuing to work alongside the Financial Services Committee to roll back onerous regulations and get our economy moving again.”
More than 1,500 banks have failed, been acquired, or merged since 2006, she said. Currently, there are fewer than 6,000 banks and roughly 6,000 credit unions in the United States – the lowest number in 125 years. Tenney said this bill will help reverse this trend.