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Dodd-Frank relief bill moves to the Senate floor

President Donald Trump has called for a near-total repeal of the Dodd-Frank Wall Street Reform and Consumer Protection Act, but the regulatory relief bill that has the best shot of landing on his desk this year purposely attempts to be a “skinny” reform measure designed to gain traction in Congress, according to industry analysts.

Senate Bill 2155, known as the Economic Growth, Regulatory Relief and Consumer Protection Act, appears to have enough support from moderate Senate Democrats to pass with a filibuster-proof 60 votes. The bill's sponsors include 12 Democrats and one independent. Although progressive Democrats and consumer-advocacy groups oppose the legislation, the mortgage lobby says it has a good chance of passing.

The Senate banking committee moved the bill forward last week. On Tuesday, the Senate voted by a margin of 67 to 32 votes, to begin the debate, and established a time frame. The Senate is expected to vote on the bill within days.  

doddfrankreform“We are very optimistic that this bill is going to get final passage in Congress,” said Brian Cooney, the senior vice president and legislative counsel for the Independent Community Bankers of America. “That doesn’t mean to say that it is not going to be a bumpy ride in getting there.”

Although far smaller in scope than the Financial CHOICE act, which was passed in the U.S. House of Representative, the Senate bill proposes significant changes to the 2010 Dodd-Frank law.

All but the largest U.S. banks would be exempt from stress testing and rules for enhanced prudential standards that impose capital, liquidity and risk-management requirements. The bill also weakens the Volcker Rule, by creating exemptions for banks on the ban on proprietary trading.  

Smaller banks would be one of the biggest winners. Banks with less than $10 billion in assets, which include most regional banks, would be exempt from the qualified mortgage (QM) rule that aimed to stop predatory lending practices by requiring the bank to ensure a consumer’s ability to repay the mortgage. Most loans held in portfolio would get the status of a qualified mortgage, making it harder for wronged borrowers to sue the bank later on. The mortgage industry says that smaller banks won't take undue risks with loans they have to keep on their books. 

The bill also contains a grab-bag of measures that are supported by the mortgage lobby, but failed to move forward as stand-alone bills. Banks that do fewer than 500 closed-end loans or 500 lines of credit in a year would be exempt from the greatly expanded reporting requirements under the Home Mortgage Disclosure Act (HMDA).

The bill also would enable banks to waive appraisals in rural areas, if no license appraiser can be located within a reasonable time.

In addition, the legislation would allow bank originators to obtain a temporary license to originate loans for a nonbank or in another state, while they complete the licensing requirements. Nonbank lenders would otherwise be largely unaffected by the Senate’s bill, said Scott Olson, executive director of the Community Home Lenders Association.

“The transitional licensing piece in the bill is constructive for nonbank mortgage lenders,” Olson said. “The QM piece generally does not help nonbanks as they generally don't hold loans in portfolio, although a few sell to banks, which is allowed under the bill.”

Cooney said a handful of new provisions could be added to the Senate bill in a so-called “manager’s amendment,” but he doubted these would be controversial.

“It is very much a bipartisan Republican and Democrat bill,” Cooney said. “So, nothing is going to go in that manager’s amendment unless everyone who is a co-sponsor would agree to it, and that is a pretty heavy lift.”

If passed, the U.S. House of Representatives could either consider passing an identical version as the Senate bill, amend the Senate bill, or request a formal conference where a joint committee would hammer out a final bill.

 “We have a White House that is fully behind regulatory relief for community banks, and we have a Republican-controlled Senate and a Republican-controlled House that are in the same place,” Cooney said. “For that reason, we are very optimistic; however, as I said we are going to be extremely vigilant with respect to the process to make sure that this bill gets across the finish line.” 


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