Dodd-Frank reform effort grinds on slowly

The Scotsman Guide - Victor Whitman - 16 Oct 2017

On the campaign trail, President Donald Trump promised to dismantle the Obama-era rules on the banking and mortgage industry. As late as this April, Trump spoke of “a major elimination” of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

This wasn’t entirely hyperbole. In June, House Republicans passed a sweeping regulatory reform bill, the Financial CHOICE Act, that called for tossing out sections of the Dodd-Frank Act and establish a new regulatory framework. The banking and mortgage industry generally supported the bill, even if few lobbyists gave it much chance of gaining traction. The CHOICE Act received no support from Democrats, who deemed it the “Wrong Choice Act.” The bill hasn’t advanced.

While another big overhaul bill hasn't emerged, the Trump administration appears committed to significantly unwinding many of the rules imposed on banks and Wall Street after the recession. Earlier this month, the U.S. Treasury published its second major report on Dodd-Frank, this time making a number of recommendations to loosen rules on Wall Street. This followed a June report on the banking regulations, which recommended restructuring the Consumer Financial Protection Bureau, among other changes to Dodd-Frank.

Regulatory reform, however, likely won’t come in the form of a headline grabbing bill, but through a slow, multiyear grind, according to Washington insiders. In Congress, the bills will likely be bipartisan, narrowly defined measures that clean up sections of Dodd-Frank that haven’t worked well, and unintentionally harmed consumers. Trump regulators also are likely to initiate other changes through formal rulemaking. Last week’s markup in the House Financial Services Committee may provide a window into the plodding the future of regulatory reform.

Last week, the House committee — the same Republican-controlled panel that produced the Financial CHOICE Act — moved forward several bills supported by the banking and mortgage industry. The first was H.R. 2148, a bill with nearly unanimous bipartisan support, that would clarify a post-financial crisis regulation on banks that provide so-call high volatility commercial real estate loans.

The bill aims to more precisely define what are basically construction and land-acquisition loans for commercial developments. The loans are given a significantly higher risk weighting than regular commercial loans, requiring banks to hold more capital when holding these loans in portfolio.

The bill also included some changes that may make it easier for banks to seek an exemption. Banks also will have an off-ramp from the higher capital standard as the loan matures, or is converted into permanent financing.

The House committee also passed H.R. 2954, which would exempt residential lenders who have originated fewer than 500 closed-end mortgage loans in each of the two preceding calendar years from the data collection and reporting mandated by the Home Mortgage Disclosure Act (HMDA), according to a Mortgage Bankers Association analysis. That threshold is currently at 25 loans.

During an interview last week, Bob Davis, a senior vice president with the American Bankers Association, said he expects regulators to take a lead in crafting regulatory reforms next year as more Trump officials are appointed to key positions. He said it won’t be a quick process, however.

“The Dodd-Frank rules were years in the making,” Davis told Scotsman Guide News. “The unwinding of some of this, and the peeling back of some of the layers of the onion, are going to be years in process as well.”