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Senate passes Dodd-Frank reform bill

As widely expected, the U.S. Senate passed a regulatory-relief bill that rolls back portions of the Dodd–Frank Wall Street Reform and Consumer Protection Act.

bankbillBy a 67-31 vote late Wednesday, the Senate passed S. 2155, the Economic Growth, Regulatory Relief and Consumer Protection Act, with moderate Democrats joining Republicans in voting for it. The bill is not a sweeping overhaul of the 2010 law, but does contain numerous changes that mostly benefit small banks and credit unions. Few of the changes will impact nonbank mortgage lenders, however.

Notably, a late change to the bill would compel the U.S. Department of Veterans Affairs (VA) to tighten its loan-guarantee program to curb predatory serial refinancing, known as “loan churning,” that targets VA borrowers. The bill also included a measure long sought by the mortgage industry that would allow loan originators to obtain temporary license when they move from a bank to a nonbank or go to work in another state. Another win for the mortgage industry is a provision that enable banks to waive appraisals in areas where it is challenging to find a certified appraiser.

Community banks and credit unions are the biggest winners with S. 2155, according to analysts. It gives smaller banks greater flexibility in making loans that don’t conform with the federal definition of a qualified mortgage, basically a loan underwritten to ensure that the borrower can make the payments and doesn't become a victim of predatory lending. Banks will be able to make these non-qualified mortgages, so long as they hold them in portfolio.

Small banks also would be exempted from new, greatly enhanced reporting requirements under the Home Mortgage Disclosure Act (HMDA), if the institutions originate fewer than 500 loans or lines of credit annually. The Consumer Financial Protection Bureau expanded what must be reported about loans and the mortgage customers, a change designed to generate more fine-grained data from individual lenders to help ensure that certain classes of people are not discriminated against.  

Banking trade groups, such as the Independent Community Bankers of America, hailed the changes in S. 2155 related to HMDA and non-qualified mortgages. The Mortgage Bankers Association, however, expressed concerns in a letter last week that those changes only benefit banks and credit unions and could distort the market to the disadvantage of nonbank lenders. The MBA was strongly in favor of the overall bill, however.

S. 2155 still faces an uphill battle in the U.S. House of Representatives. Most Democrats oppose the bill, which also strips away some regulations and oversight on large banks with less than $250 billion in assets. During the floor debate, Democrat opponents of the bill dubbed it the "Bank Lobbyist Act."

Conservatives in the U.S. House of Representatives will likely try to roll back Dodd-Frank further. That could erode the legislation's fragile support among the Democrat sponsors and sink the bill’s chances, according to some analysts.

“Well, the problem is the House,” said Barney Frank, a former Massachusetts congressman and one of the principal architects of the Dodd-Frank law. Frank told Scotsman Guide News this week that he doesn’t view the current bill as major threat to Dodd-Frank, but would "reluctantly" vote against it if he were still in Congress. Frank, a Democrat, supports most of the changes that affect community banks, but opposes the HMDA reporting exemption. He also said S. 2155 too greatly eases regulations, particularly those related to enhanced supervision, on large banks with assets between $100 billion and $250 billion.  

“People have been understandably focusing on the arguments between the Democrats, but you are now going to have major pressure, a major fight in the House, between Republicans who want to vote for this bill and satisfy the smaller banks and the very ideologically motivated leadership of the [House] Financial Services Committee, who don’t want to pass this bill precisely because it will leave too much of Dodd-Frank intact,” Frank said.


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