The Weight of Regulation

Episode 36 | The Construction Lending Podcast

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Tim Roy and Ron Haynie from the Independent Community Bankers of America (ICBA) join this episode to share their unique perspectives on the regulatory and legislative challenges shaping today’s banking landscape, from navigating 5,000+ pages of new regulations to grappling with industry changes since Dodd-Frank. They explore how community banks serve as the financial backbone of rural and small-town America and why tailored regulation is essential for their survival and growth. The discussion delves into policy initiatives, the impact of big data and compliance burdens, and the future interplay between housing trends and community banking.

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Questions Answered

• What are some of the main challenges that community banks face with regulatory compliance?
• What are some specific regulatory examples—like HMDA reporting or the small servicer exemption—that the ICBA would like to see reformed?
• How does the ICBA advocate for more tailored regulation for community banks versus larger financial institutions?
• What would the ideal landscape for community banks look like if certain regulations were removed or changed?
• What are the current trends and the outlook for community banks in construction lending?

Episode Recap

Building the Future: How Community Banks and Regulation Shape Construction Lending

Inside the Challenges and Opportunities for Community Banks in Housing Finance, Policy, and Construction Lending — A Deep Dive with Industry Leaders from the ICBA

Introduction

The landscape of construction lending and community banking in America is rapidly evolving. As regulatory complexities mount and the needs of local communities intensify, community banks play a pivotal—and often underappreciated—role in supporting local economies, small businesses, homeowners, and construction projects. In episode #36 of The Construction Lending Podcast, host Sean Faries sat down with Ron Haynie and Tim Roy from the Independent Community Bankers of America (ICBA) to unravel the nuanced intersection of regulation, housing finance policy, and construction lending. Here, we expand on their insights, exploring the mission, challenges, and bright future of community banks amidst a shifting regulatory landscape.

The ICBA Mission: Advocating for the Lifeblood of Local Economies

The Independent Community Bankers of America (ICBA) is the only national association dedicated exclusively to representing the interests of community banks. As Ron Haynie, Senior Vice President of Mortgage Finance Policy, explained, the ICBA’s mission is straightforward yet essential: “We work to create an environment where community banks flourish.”

Community banks are integral to many Americans—especially in rural areas or small towns where the absence of these institutions would leave communities financially stranded. ICBA strives to ensure these banks can grow, thrive, and, most importantly, serve their communities. Whether it’s funding small businesses, agricultural ventures, commercial projects, or home ownership, community banks are the connective tissue of local economies. They support not just individual customers but also the infrastructure that underpins thriving communities, from hospitals to new housing developments to disaster recovery.

Regulatory Challenges: When 5,000 Pages Stands Between Banks and Communities

One of the recurring themes in the discussion was regulation—and its heavy footprint on community banking. Over the past few years, the regulatory environment has ballooned, with community banks facing over 5,000 pages of new rules in addition to thousands more already on the books.

Unlike large national institutions with legions of compliance staff, community banks often operate with fewer than 100 employees. Ron Haynie vividly illustrated the regulatory burden: “Our average member… has under, in fact, I know under 100 employees… There’s one person probably that handles [compliance] along with about five other things or 20 other things.”

Complying with voluminous, highly technical regulations is far from simple. Each rule change demands careful review, interpretation, system updates, and ongoing reporting—with significant consequences for non-compliance ranging from fines to consent orders. As regulations have grown more complex, compliance has become more costly and time-consuming, sometimes pushing smaller banks to exit market segments like mortgage lending altogether.

The Disproportionate Impact of Regulation

Why does this regulatory wave so deeply affect community banks? It comes down to size, scope, and resources. Tim Roy emphasized that “regulation disproportionately impacts community banks… You don’t have 80,000 people in your organization and a whole building… dedicated with attorneys and people to read those 5,000 pages.”

Most regulations were designed with much larger institutions—and the risks they pose to the broader financial system—in mind. When the same frameworks are forced onto small, locally focused banks, the effect is stifling. For example, data collection requirements under HMDA (Home Mortgage Disclosure Act) apply equally to the smallest local bank making a handful of loans and to mega-banks lending nationwide.

Historically, legislative responses to crises—like Dodd-Frank after 2008—have often overlooked these crucial differences, leading to unintended consequences for local banks. The “one size fits all” approach erodes the ability of community banks to offer specialized, flexible products to local borrowers—the very service that sets them apart and supports community growth.

Finding Relief: The Case for Tailored Regulation

So, what’s the solution? The ICBA has proposed a strategy—Repair, Reform, and Thrive—to address overbearing regulatory burdens and help community banks prosper. Central to this approach is the idea of tailored regulation: rules should reflect an institution’s size, business model, and actual systemic risk.

For example, Haynie and Roy highlighted efforts to adjust HMDA reporting thresholds and reform recent Community Reinvestment Act (CRA) updates, which would right-size the compliance burden for smaller lenders. The conversation also mentioned the need to revisit rules targeting mortgage servicing rights—a key business line many community banks have been forced to abandon due to capital requirements originally intended for much larger institutions.

The ultimate goal is not deregulation, but smarter, risk-based regulation that allows community banks to focus on what they do best—relationship-based, community-driven lending.

The Competitive Landscape: Non-Banks, Fintech, and Shifting Market Share

Another critical trend discussed was the rise of non-bank lenders and fintech firms in the mortgage and construction lending spaces. Unlike banks, non-bank mortgage lenders face lighter regulation and have claimed increasing market share as banks pull back from complicated or expensive business lines.

Tim Roy pointed out the paradox: “After, since the financial crisis, since Dodd Frank… the quality of loans are so much better… the book of business is like pristine in comparison.” Yet, the institutions providing these solid loans are also carrying more regulatory weight and struggling to compete with nimble, less regulated newcomers.

Community banks are further squeezed as growing regulatory cost structures collide with agile, tech-centric competitors. The irony isn’t lost on industry insiders: As banks become more regulated, less supervised players dominate market share—a dynamic that could hold risks for the broader financial system down the road.

Construction Lending: Bread and Butter amid a Housing Crunch

Despite these headwinds, construction lending remains a bright spot for many community banks. With housing inventories at historic lows and high interest rates “locking in” many homeowners, new construction may be the only path to homeownership for many Americans. Community banks, with their local knowledge and flexible approach, are uniquely positioned to step up—tailoring loans for local builders and buyers that larger institutions might not touch.

Reports from the field suggest a surge in construction loan demand in certain regions, with some banks “taking more construction loan applications this month than they did the entire last year.” As Ron Haynie explained, community banks are often the sole source of financing for local projects—able to act quickly and creatively to meet local needs. This adaptive capacity is vital as communities tackle housing shortages, rising building costs, and demographic shifts (such as aging baby boomers eventually downsizing).

The Future: A Call for Renewal, Flexibility, and Advocacy

As the conversation wound down, Haynie and Roy reflected on what the future could look like if regulations were right-sized and local financial institutions given more breathing room. They envisioned a revitalized landscape where community investment fuels new banks, local businesses, and housing opportunities—benefiting borrowers and economies alike. Importantly, this would enable community banks to diversify, rather than having to “pick and choose” which lines of business regulatory burdens allow.

While neither guest saw a grand conspiracy against small banks, both agreed that well-intentioned legislation often fails to appreciate the nuances of the community banking model. Advocacy, education, and ongoing dialogue with policymakers remain essential to ensuring that rules are appropriately tailored and that community banks aren’t left behind in a rapidly changing marketplace.

Conclusion

Community banks are at a crossroads—a reality reflected in their experiences with both opportunity and overload. As construction lending rebounds and local economies look to rebuild or expand, the role of community banks remains absolutely vital. Yet, only by addressing disproportionate regulatory barriers and encouraging innovation on a local, flexible basis will the industry continue to support underserved communities, fuel homeownership, and adapt to new demographic and economic realities.

The ICBA and its members are committed to staying at the forefront of these crucial conversations, driving change not only for their own survival but for the millions of Americans who depend on them for their homes, businesses, and futures.

Connections

Tim Roy
ICBA – Tim Roy

Ron Haynie
ICBA – Ron Haynie

ICBA
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