Challenges loom for community banks even as the housing recovery seems to be on firmer footing, according to a new survey by the American Bankers Association (ABA).
Compliance burdens for residential mortgages, risk management and capital requirements for commercial real estate lending present the biggest threats to credit availability in the coming year, said ABA Chairman Matt Williams, chairman and president of Gothenburg State Bank.
"The results predominantly represent community institutions, which Federal Reserve data has shown make a quarter of all mortgages to buy homes," said Williams in a statement. "Community bankers know their local economies and they know their customers. They’re among the best in mortgage lending, but face a number of challenges in the coming year."
The 261 respondents, 85 percent with assets less than $1 billion, reported an increase in the percentage of single-family mortgage loans made to first-time homebuyers from 9 percent in 2011 to 11 percent in 2012, as a result of the improving economy. In addition, mortgage loan workouts and other loan modifications have begun to decline.
Foreclosure rates remain little changed at 0.98 percent due to the lengthy foreclosure process in many states. The decline in the number of foreclosures will trail other improving statistics. Delinquency rates for single family homes continue to improve with recovering unemployment rates and fewer layoffs.
Despite regulatory challenges, adjustable rate mortgages remain an important part of community bank lending representing 17 percent of all mortgages.
Commercial real estate loan demand is trending higher with the recovery of the economy, but is still constrained by the number of credit-worthy projects.
According to the survey, bankers are most concerned about the increasing regulatory burden and compliance cost. Another top concern is managing the risk of a possible interest rate hike.
"Throughout the next year, we expect to see improving commercial real estate opportunities and increasing demand for mortgages for home purchases as the economy continues its gradual improvement," said Williams in a statement.
