Real Estate Tips: Dodd-Frank Rollback Details

Warning, business speak ahead :)

This past week, Congress voted to repeal part of the Dodd-Frank Act (fully known as the Dodd-Frank Wall Street Reform and Consumer Protection Act) that was established back in 2010. As a reminder, this was put into place after the financial crisis in the U.S. economy when risky and unaffordable mortgages contributed to millions of homeowners losing their houses to foreclosure. See details below defined in an article posted by Investopedia. 

The rollback of Dodd-Frank provisions

On May 22, 2018 U.S. House of Representatives voted 258-159 in favor of a bill that will significantly rollback provisions of the Dodd-Frank Act. The bipartisan legislation called the Economic Growth, Regulatory Relief, and Consumer Protection Act will now be sent to the President for his signature. Here are some of the provisions of this bill that reverse the stance of existing financial regulations:

  • Small and Regional Banks: The new bill eases Dodd-Frank regulations for small and regional banks by increasing the asset threshold for application of prudential standards, stress test requirements and mandatory risk committees.
  • Large Custodial Banks: For institutions that had have custody of clients' assets but do not function as lenders or traditional bankers, the new bill proposes lower capital requirements and leverage ratios.
  • Mortgage Credit: The new bill exempts escrow requirements for residential mortgage loans held by a depository or credit union under certain conditions. The bill also directs the Federal Housing Finance Agency to set up standards for Freddie Mac and Fannie Mae to consider alternate credit scoring methods.
  • Small Lenders: The bill exempts lenders with assets less than $10 billion from requirements of the Volcker rule and proposes less stringent reporting and capital norms for small lenders.
  • Credit Bureaus: The bill proposes free credit security freezes for customers of credit bureaus like Equifax. 

All in all, if this law gets signed by the President later this week, then larger institutions like Wells Fargo and US Bank should not anticipate significant impacts from this change, but it could make it easier to get a mortgage from a community bank or credit union. In simple terms, the changes would let smaller institutions — those with up to $10 billion in assets — offer mortgages that are not subject to some of the strictest federal underwriting requirements, as long as they meet certain other conditions. (Source, CNBC.com)