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What Will Dodd-Frank Modification Bill Mean for Housing?

Capitol Building Sunset - Washington DCThe United States Senate voted Wednesday afternoon to advance S. 2155, the Economic Growth, Regulatory Relief, and Consumer Protection Act, after several weeks of debate, amendments, and negotiation.

On Wednesday afternoon, the Senate finally voted 67-31 to end debate on the bill, capping many days' worth of debate over potential amendments to the bill. The bill must know return and pass the House, which had previously passed a different version of the bill before it went to the Senate.

Before the final vote on passage, Banking Committee Chairman Mike Crapo remarked that America was about to witness a “rare, bipartisan moment that had been years in the making,” adding, “this bill is a bipartisan compromise, the changes are common sense, and it will allow financial institutions to better serve their customers and communities, while maintaining safety and soundness and important consumer protections. At a time of intense political polarization, we have proven that we can work together to get things done. This is good for small financial institutions, good for small business, and good for families across America.”

The bill enacts numerous reforms and changes regulations pertaining to lenders. One of the primary changes is increasing the threshold for enhanced regulatory standards from $50 billion to $250 billion, a change designed to exempt some smaller and mid-sized banks from regulations that would still apply to the larger banking entities. The affected regulations pertain to capital and liquidity rules, risk management standards, and stress testing requirements, among other things.

Former Sen. Barney Frank, one of the authors of the Dodd-Frank Act, told Scotsman Guide this week, "I think [the asset threshold] should be $125 [billion to trigger FSOC oversight]. So, I would vote against it on those grounds. I would hope to try and change it. But, as far as [non-qualified] mortgages are concerned, I think allowing the smaller banks to make those loans as long as they keep them in portfolio is a perfectly good idea."

The bill also exempts banks with less than $10 billion in assets from the Volcker Rule, which limits risky trading by U.S. banks, and dials back restrictions on small and regional banks when it comes to restrictions on mortgage lending.

Sen. Elizabeth Warren (D-Massachusetts), who has been a longtime opponent of weakening Dodd-Frank, said, “We’ll be paving the way for the next big crash. It’s time for the rest of us to fight back and demand that Washington work for us, not the big bank lobbyists.”

The bill does have plenty of Democratic defenders, however, several of whom argue that the reforms could help community banks flourish and help revitalize rural economies. Sen. Heidi Heitkamp (D-North Dakota), a supporter of the legislation, said, “When you don’t respond to these kinds of legitimate concerns from small lenders, there’s a resentment to the overall policy. We tend to throw the baby out with the bathwater with that kind of frustration.”

More than a dozen banks sent a letter to Sen. Mike Crapo (R-Idaho) and Sen. Sherrod Brown (D-Ohio) earlier this month, expressing their support for the proposed legislation. “Our banks do not threaten U.S. financial market stability, and we should not be subjected to the same regulatory regime as larger banks with more complex and interconnected business models,” the letter read in part. “Regional and traditional lenders and our communities have been disadvantaged by a regulatory model that lumps us together with the largest, most complex banks.”

The Credit Union National Association also sent a letter of support to Senate leaders. Their letter read, in part, “We applaud the good faith effort to craft common-sense regulatory reform legislation. S.2155 is the result of months of deliberate bipartisan negotiations and contains several provisions supported by America’s credit unions.”

Yana Miles, Senior Legislative Counsel for the Center for Responsible Lending, issued a statement reading, “The financial crisis led to a Great Recession that cost millions of Americans their jobs, homes, and savings. This bill would allow for the return of many of the same reckless financial practices that caused the crash. This bill lifts commonsense safeguards, designed to stop banks from again tanking the economy, while also making it easier for financial companies to sell risky mortgages, discriminate against communities of color, and steer manufactured-home owners into more expensive mortgages. The American public does not want this dangerous bank deregulation. Congress is playing with fire."

About Author: David Wharton

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