TX vs. Disparate Impact

The State of Texas has stepped into the fair housing fray, challenging the use of disparate impact in housing discrimination cases.

On March 24, 2014, the U.S. Court of Appeals for the Fifth Circuit issued an opinion in Inclusive Communities Project, Inc. v. Texas Department of Housing and Community Affairs. The only issue the Court addressed was whether the district court correctly found that ICP proved a claim of violation of the Fair Housing Act based on disparate impact. The Court adopted the disparate impact standard found in rules recently enacted by the Department of Housing and Urban Development in housing discrimination cases and remanded the case to the district court for it to apply this legal standard to the facts. TDHCA has now asked the U.S. Supreme Court to hear this case.

This is the third case to reach the Supreme Court on this issue, with the other two settling prior to an opinion by the Court. If the Supreme Court grants the request, it will have another opportunity to answer the question of whether the concept of disparate impact belongs in housing discrimination claims, which could also affect fair lending claims against lenders.

Department of Banking Meetings

The first of the Texas Department of Banking’s town hall meetings took place in Lubbock on Wednesday, bringing together community banks from across the state to discuss the challenges and opportunities that exist for community bankers in 21st Century America.

Additional meetings are scheduled for:

The meetings include a discussion of some of the questions from a recent survey of State chartered banks, among other issues. Please register for the meeting closest to your area.

Baker Market Update: June 2, 2014

There’s a fellow I know who is fond of reminding his friends that he started out this life with nothing. And, he proudly likes to add, he still has most of it left. When looked upon in that light, maybe yesterday’s GDP report from the Bureau of Economic Analysis isn’t so bad. While the second estimate of first quarter GDP indicated that the economy shrunk by 1%, we’ve still got most of it left. If the third and final revision, due for release in late June, keeps the Q1 count on the wrong side of zero, it will mark the first time that’s happened since Q1 2011. Nevertheless, the lapse into negative growth territory is seen by many observers (if not most) as an unfortunate “hiccup” evoked in large part by harsh weather. Nobody seems to get tired of talking about the weather, especially when confidently making the case for a Q2 bounce back of as much as 4%.

Read more in the Baker Market Update.

2014 Leadership Conference

IBAT's 29th Annual Leadership Conference will be held at the beautiful JW Marriott San Antonio Hill Country, June 26-28, 2014. You are guaranteed inspiration with new ideas, motivation to get the job done, and education on how to do it. This year’s theme, Back to the Future, is loaded with speakers who will help you to be the champion at your bank.

Still need a good reason to attend? We'll give you 5:


Develop community with other banking leaders without judgment or competition.


Extreme ROI like no other industry conference! We focus on what matters to you, because it matters to us, too.


A family environment with the perfect blend of education and fun.


An inside look into the current state of community banking from IBAT’s President Chris Williston.


The MOOSE, Daryl Johnston, will deliver a conversation with all in attendance. We are encouraging all attendees, including spouses and kids, to hear his message on The Art of Leadership.

Take advantage of the early bird pricing and register before May 23!

The Results Are In

Last week, IBAT staff and several community bankers participated in a conference call with House Financial Services Committee staff to discuss the results of our recent membership survey on the impact of CFPB mortgage rules that require certified appraisals on homes over $25,000.

More than 60% of IBAT members who responded to the survey reported limited availability of certified appraisers in their area, often resulting in substantial delays in closing. Another widespread concern was the increased costs to consumers as a result of the requirement, with one bank noting that the cost for a certified appraisal is 400% more expensive than the “drive by” appraisals previously used for small loans.

“Low to moderate income borrowers don’t want to pay $400 for an appraisal on a $35,000 home,” said one IBAT member, “[the rules have caused] home ownership among these families to decline and it will decline further.”

IBAT recommended that an internal “opinion of value” be sufficient for all in-portfolio HPMLs with transaction values of less than $250,000. 87.5% of members responding to the survey indicated that this change would help them better meet the mortgage needs of their community.

A link to the full survey results can be found here. IBAT member banks in the most rural areas of Texas were asked to participate in the survey. If you were not contacted and would like to weigh in on this issue, please contact Shannon Phillips using the contact information below.

The Best Bank Regulation

If you haven't yet seen it, please take a few minutes to watch Mike Huckabee reflect on community banking. We believe that he pretty much "nails it." Special thanks to Michael O'Rourke and Chuck Phelan of TIB for bringing this to our attention. Enjoy!

IBAT in Action

Karen Neeley, IBAT General Counsel, appeared before the Senate State Affairs Committee Monday at an interim hearing to explore the patent assertion entity issue, among others. All witnesses were invited to provide testimony.

“According to a 2013 Report from the American Intellectual Property Law Association, the average cost of defense in patent infringement litigation is in excess of $2,000,000,” Neeley said. “The economics of such cases push defendants into settlement mode.”

"We are gratified that the Senate is looking at this continuing problem and exploring options to bring some relief to end users of technology who find themselves subject to dubious, costly and annoying lawsuits," said Chris Williston, IBAT President and CEO.

A full copy of Neeley’s testimony on behalf of IBAT is available here. The IBAT Board has directed staff to include this issue in its proactive agenda for the upcoming session. Additionally, we will continue to work with other interested parties at the federal level on this important issue.

Staff contact: Shannon Phillips, sphillips@ibat.org, 512-275-2221

Hurricane Season

As Texas prepares to enter hurricane season, it's a good time for community bankers to revisit their disaster preparedness efforts. Below are links to various publications issued by regulators over the past several years to assist financial institutions with disaster preparation.

In addition to these links, IBAT offers a FREE emergency hotline system for use by member banks to assist you in keeping in touch with your employees in the event of a natural disaster or other business-disrupting event.

International Money Transfers

The CFPB issued proposed revisions to the international money transfer rules, which includes an extension for banks to provide exact disclosures in certain cases.  If adopted, the CFPB proposal would extend by five years the temporary exception that allows banks to estimate third-party fees and exchange rates when they can’t determine the exact amounts for reasons beyond their control. This extension is particularly needed with open network wire transfers.

IBAT strongly supports this proposal and submitted a brief comment letter on this and other proposed amendments - supporting three, requesting amendment of one, and opposing two - including transfers from non-customer accounts, fax disclosures, oral disclosures, non-English disclosures, definition of error, delays for fraud screening, and error resolution procedures

Baker Market Update: May 27, 2014

After much debate with a colleague on the appropriateness of the term “dinner” during your second meal of the day, I must admit defeat. Apparently, it is perfectly acceptable to have dinner at noon. As my father-in-law says, “The Internet Has Officially Killed the Beauty of Debate.” However silly that may sound, feel free to have your most significant meal of the day while reading this rare edition of Dinner with Drew. I must warn you however, it will be a far cry from the excellent musings of Lunch with Lester. As for my “dinner” plans, I intend to have a burger AND a hot dog, because… America!
As we head into the Memorial Day weekend, both equity and bond markets are slightly up. [Friday] morning, the UST 10yr remains near the 2.50% handle while the Euro slid 0.2% to $1.3627 amid speculation that the European Central Bank will boost stimulus efforts. Domestically... Read more in the Baker Market Update.

S Corporation Concerns

In a letter drafted last week, more than 40 members of Congress called upon banking regulators to reconsider elements of the Basel III capital conservation buffer requirements for S corporation financial institutions.

At the heart of the issue is a restriction on Subchapter S banks from issuing dividends to shareholders to cover the tax liabilities of the bank if the bank falls below a certain capital buffer threshold.

“Smaller banks rely on local investors for capital formation,” the letter read. “Shareholders of Subchapter S Banks should not be penalized for investing in a community institution, yet we fear that will be the case under the aforementioned rule."

As mentioned in last week’s Bottom Line, IBAT Associate Member Fenimore, Kay, Harrison & Ford, LLP has prepared a white paper on this issue for the use of IBAT members. Additionally, the Subchapter S Bank Association, ICBA and other trade groups have written letters to regulators urging the creation of carve out for S corporation shareholder dividends. The Subchapter S Bank Association letter can be found here.

Regulatory Relief

With lawmakers back from a working recess in the district last week, the House Financial Services Committee is poised to resume marking up and voting on regulatory relief bills this Thursday. As reported in the May 6 issue of the Bottom Line, the committee is set to approve:

  • H.R. 2673, which confers QM status to any loan kept in-portfolio;
  • H.R. 4466, which requires various regulators to assess duplicity or conflict with existing rules prior to issuance of a new rule, and also requires a review of existing regulations within 60 days of a proposed rulemaking; and
  • H.R. 4521, which exempts creditors under $10 billion from escrow requirements on in-portfolio loans and increases the small mortgage servicer exemption to 20,000.

In anticipation of the vote, IBAT again requests that constituents of Committee Democrats Al Green and Ruben Hinojosa follow up with these members to urge their support of the bills. Contact information is included in the link above. A strong show of bi-partisan support will help determine strategy in moving bills forward during this Congress.

Other efforts are in motion to move additional relief measures for rural banks in the area of mortgage appraisals. More information on those efforts will be provided in next week’s Bottom Line.

GSE Reform

Last week the Senate Banking Committee voted 13-9 to approve legislation to reform the housing finance system. The “Johnson-Crapo” bill, like other GSE-reform measures, is aimed at winding down Fannie Mae and Freddie Mac, and ultimately limiting taxpayer liability. Additionally, it would create a new Federal Mortgage Insurance Corporation, modeled after the FDIC, and form a mutual cooperative jointly owned by small lenders.

Chairman Jeb Hensarling’s PATH Act was passed out of the House Financial Services Committee last summer. The full House has yet to consider GSE reform, and is not expected to do so.

GSE reform is a very complex issue, with strong competing interests holding divergent opinions on the ultimate outcome. The prospects of a solution in this Congress are minimal at best, however, we do anticipate some focus on this issue after the first of the year when a new Congress is sworn in.

We will continue to press lawmakers to ensure that any solution provides community banks a viable and non-discriminatory conduit to the secondary market.