Senate Banking Committee Talks Housing Regulation

On Tuesday, the Senate Banking Committee held a hearing titled “Implementation of the Economic Growth, Regulatory Relief and Consumer Protection Act.” Witnesses in the hearing included The Hon. Joseph M. Otting, Comptroller, Office of the Comptroller of the Currency; The Hon. Randal K. Quarles, Vice Chairman for Supervision, Board of Governors of the Federal Reserve System; The Hon. Jelena McWilliams, Chairman, Federal Deposit Insurance Corporation; and The Hon. J. Mark McWatters, Chairman, National Credit Union Administration.

“As policymakers, it is our job to enact laws and regulations that not only ensure proper behavior and safety for our markets but are also tailored appropriately,” said Mike Crapo, Chairman of the U.S. Senate Committee on Banking, Housing, and Urban Affairs. “Shortly after Dodd-Frank was signed into law, we began to see some of the unintended cumulative regulatory burden it had on certain financial institutions.”

“The OCC is participating actively in interagency consultations related to the rulemakings and other efforts underway by the Bureau of Consumer Financial Protection to implement the Act’s changes to federal consumer financial protection laws,” Comptroller Otting said.

One of the points of discussion was the implementation of new appraisal rules, notably section 103 of the Act which exempts certain loans for residential loans in rural areas.

"The exemption applies to federally related transactions under $400,000 and secured by a lien on properties located in rural areas," McWilliams explained. "The exemption does not apply if a federal financial institution’s regulatory agency requires an appraisal for safety and soundness purposes or if the loan is a “high-cost mortgage,” as defined in the Truth in Lending Act. The agencies are currently working on changes to existing regulations"

Otting also discussed the amendments made by section 401 of the Act, which enacts changes to the stress testing threshold.

“Stress testing serves a critical function for both regulators and financial institutions by ensuring that financial institutions consider potential economic events that could cause significant balance sheet disruptions and prepare to mitigate such disruptions if necessary,” said Otting.

Other exemptions discussed include section 104 of the Act, which provides partial exemptions to the Home Mortgage Disclosure Act.

“The partial exemptions are generally available for: closed-end mortgage loans, if the credit union originated fewer than 500 closed-end mortgage loans in each of the two preceding calendar years; and open-end lines of credit, if the credit union originated fewer than 500 open-end lines of credit in each of the two preceding calendar years,” said McWatters in his testimony.

The Act also tries to ease the burden on small banks through the rule known as the small bank holding company policy statement.

In his statement, Quarles discussed the importance of the rule. “This element of the Board’s rules aims to facilitate the transfer of ownership in small banks, which can require the use of acquisition of debt, while maintaining bank safety and soundness,” he said.

Find the complete testimonies from the hearing here.