Welcome to ICBA Community Bank Day

1. Welcome to ICBA Community Bank Day Fe Federal Legislative Issues Renee Rappaport ICBA Vice President, Congressional Relations Made possible by our generous sponsors

2. 113th CONGRESS • Gridlock in Washington • Notwithstanding, ICBA has won several important victories including: • Flood insurance bill • Farm bill • Municipal advisor registration requirements • Volcker rule—CDO TruPS ICBA Community Bank Day sponsored by:

3. FOCUS ON FOUR AREAS • Regulatory reform • QM rule • Housing finance reform (Fannie Mae/Freddie Mac) • ICBPAC ICBA Community Bank Day sponsored by:

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

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

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

7. LEGISLATIVE ACTIVITY ON REGULATORY RELIEF • To date, 23 separate bills introduced in both House and Senate which contain PFP provisions • CLEAR Act: HR 1750/S 1349 contain most provisions and have most co-sponsors ICBA Community Bank Day sponsored by:

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

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

10. HOUSING FINANCEREFORM • Fannie Mae & Freddie Mac paid $200B to U.S. Treasury in conservatorship, reducing federal deficit • Reformers on Capitol Hill fearful this will harm efforts to create a new secondary market system • Some holders of GSE preferred and common stock have filed lawsuits challenging the sweep of GSE earnings into the U.S. Treasury ICBA Community Bank Day sponsored by:

11. CONGRESSIONAL RESPONSE-SENATE • Johnson-Crapo bi-partisan legislation, some 450 pages Highlights: • Creates new entity, Federal Mortgage Insurance Corp. (FMIC) – modeled after the FDIC • FMIC will provide federal govt. guarantee to MBSs issues by approved entities ICBA Community Bank Day sponsored by:

12. CONGRESSIONAL RESPONSE SENATE CONT. • Approved entities will provide 10% credit support to absorb first losses in front of govt. guarantee • FMIC would approve guarantors, aggregators and servicers. All existing GSE servicers are grandfathered and approved. ICBA Community Bank Day sponsored by:

13. CONGRESSIONAL REPSONSE – SENATE CONT. • FMIC will set underwriting standards for loans securitized with FMIC guarantee. • FMIC will charge fees to build up its insurance fund ICBA Community Bank Day sponsored by:

14. SMALL LENDER MUTUAL • FMIC will create small lender mutual • Owned/managed by its members on a cooperative basis. • Small Lender Mutual will aggregate loans from community banks, credit unions, mortgage bankers, FHLBs, HFAs • Mutual will securitize loans, pay the lender in cash and permit the lender to service the loan • This essentially remains the same as the GSE cash window • Eligibility: depositories with assets < $500B; non-depositories with net worth> $2.5M; FHLBs ICBA Community Bank Day sponsored by:

15. GSE WIND DOWN • Fannie Mae and Freddie Mac are wound down over 5 years. Can be extended in 2 year increments several times, up to 10 years • No provision for junior preferred or common shareholders to be repaid ICBA Community Bank Day sponsored by:

16. ICBA CONCERNS • Vertical Integration: a guarantor can be owned by an aggregator, or originator. This would let the largest financial firms completely control the secondary mortgage market. • Upfront Capital Markets Transactions: the large originators and aggregators will use UCMTs to provide a cheaper path to obtain the 10% first loss protection; this would render the Small Lender Mutual uncompetitive, and would again drive consolidation with the largest lenders. ICBA Community Bank Day sponsored by:

17. ICBA CONCERNS CONT. • Additional regulatory authority: FMIC has authority to write mortgage rules that could impact community banks • Governance of mutual: No requirement for small bank representation on board • Application of QM standard: only QM loans would be eligible for purchase by the mutual • Junior preferred shares: no recourse ICBA Community Bank Day sponsored by:

18. SENATE BANKING COMMITTEE CONSIDERATION • Chairman and Ranking Member started markup on April 29 with opening statements • Will restart subject to the call of the chair • Still working with Senators to add provisions ICBA Community Bank Day sponsored by:

19. HOUSE ACTION • FSC Chairman Hensarling introduced PATH Act • Phases out F/F over 5 years • Securitization platform controlled by a private sector entity. No federal govt. guarantee • FHLBs authorized, but not required to, aggregate community bank loans ICBA Community Bank Day sponsored by:

20. HOUSE ACTION CONT. • PATH passed out of committee without any Democrats voting for it • Realtors and Home Builders expressed strong opposition (lack of govt. guarantee) • No House passage b/c it lacks enough votes ICBA Community Bank Day sponsored by:

21. PROGNOSIS FOR GSE REFORM? • Most likely, no bill this year • Johnson-Crapo, which has bi-partisan support, may serve as starting point next Congress • Question: will any of these proposals actually work for community banks in real world marketplace?? ICBA Community Bank Day sponsored by:

22. Advocacy in Action • Over 3,000 supporters in 2013 contributing over $870,000 • Plus $150,000 in corporate sponsorships in 2013 • Contributed $1.7 million for the 2012 elections • Supported 240 candidates for Congress

23. ICBPAC Advocacy Grassroots Lobbying • Only federal PAC exclusively dedicated to protecting & promoting the community banking industry • Supports candidates of both parties who understand community banking ICBA Community Bank Day sponsored by:

24. ICBPAC • 2013 Contributions Ohio:                     $20,700 • 2014 Cycle Disbursements to Candidates Ohio:                     $75,700 ICBA Community Bank Day sponsored by: