Regulatory Relief Bill Passes Congress—Is Mortgage Lending Freedom Ahead?
By Liz Dominguez
Change is coming to the mortgage industry in the form of lessened restrictions for many community banks, along with greater consumer protections. The Economic Growth, Regulatory Relief and Consumer Protection Act—a bill rolls back many Dodd-Frank Wall Street Reform and Consumer Protection Act regulations imposed in 2008 following the financial crisis—has been signed into law. Just two months after it passed the Senate in a 67-31 vote on March 14, it was voted in by the House on Tuesday (248-159), and signed by President Trump on Thursday.
"I applaud my former colleagues in Congress for coming together to pass the most significant financial reform legislation in recent history," said Mick Mulvaney, acting director of the Consumer Financial Protection Bureau (CFPB), in a statement on Thursday. The CFPB has been the Dodd-Frank enforcer since the agency was established in 2011.
"This new law will improve consumers' access to credit, reduce regulatory burdens on credit unions and community banks, and fuel economic growth and job creation across the nation," Mulvaney said. "As Acting Director of the Bureau of Consumer Financial Protection, I am pleased to see the long-overdue reforms to the regulations governing mortgage lending. These changes will allow community banks and credit unions to focus on making prudent loans to prospective homebuyers without being tied up in expensive and excessive red tape. I stand ready to work with Congress and the rest of the Administration to implement these new reforms that will promote a brighter, more prosperous future."
Industry professionals are largely in support of the bill, as it would prove beneficial to real estate lending, particularly for smaller banks that provide mortgages to homebuyers.
The National Association of REALTORS® (NAR) has long supported this type of reform, believing that the restrictions previously imposed have only hurt the real estate community by creating an unfair advantage for bigger banks.
"We commend members of Congress for passing this bipartisan legislation to level the lending playing field for community banks and credit unions," said NAR President Elizabeth Mendenhall in a statement. "This bill provides appropriate consumer protections while going a long way toward removing undue regulatory burdens on small lenders, which will help keep them strong, so they can help keep communities strong."
Ahead of the Senate vote, NAR sent a letter to the House of Representatives in support of the bill and on behalf of all members. The letter cited the following benefits:
- Removes undue regulatory burdens for community banks and credit unions that stand in the way of affordable credit for businesses and consumers
- Proposes Fannie Mae and Freddie Mac framework for considering alternatives to credit scores, taking into account other financial factors for mortgage eligibility
- Provides the Bureau of Consumer Financial Protection access to regulate Property Assessed Clean Energy (PACE) lenders, enforcing vetting of homeowners' ability to repay loans levied as tax assessments on their homes
- Amends the Federal Deposit Insurance Act, clarifying requirements for acquisition, development or construction (ADC) loans
- Prohibits manufactured housing retailers and sellers from being defined as loan originators if they do not receive compensation or gain for taking loan applications for residential mortgages
Lawrence Yun, chief economist and senior vice president of Research at NAR, told RISMedia, "It is very good news for homebuilders, because they need to get funding from small-sized banks and not from Wall Street. This will permit more construction loans, creating more inventory. It is solidly positive news."
Various other housing institutions have been vocal since the bill's passing, as well. The National Association of Home Builders (NAHB) followed suit and also sent a letter in support of the bill.
"NAHB is pleased the Economic Growth, Regulatory Relief and Consumer Protection Act contains critical reform elements that would help to alleviate the tight credit conditions that are keeping more buyers on the sidelines even as the housing market strengthens," said the letter, according to NAHBNow.
"Community Banks are the most common source of lending for home construction and are key providers of home mortgage loans, including mortgages for first-time homebuyers and consumers in rural communities and other underserved market segments," the letter continued. "With regulatory pressures on community banks still impacting the cost and availability of construction and mortgage credit, there cannot be sustainable housing recovery without bipartisan congressional action on these critical issues."
In addition, the Mortgage Bankers Association (MBA) applauded the House for its passing vote.
"The bill marks years' worth of work by a group of bipartisan Senators and parallel and focused advocacy by the legislative and policy teams at MBA," said MBA President and CEO David Stevens in an MBA Newslink interview. "I want to commend the House of Representatives for joining the Senate and passing this bill, which will protect consumers and provide greater access to mortgage credit."
While banks will see the most impact, those who regularly practice in the real estate industry are looking forward to increased lending freedoms, which will be a widespread boon to the housing sector.
Community banks, who stand to benefit the most from the bill's passing, are celebrating the win.
"This hard-fought, long-awaited community bank regulatory relief legislation will put community banks in an enhanced position to foster local economic growth and prosperity. By unraveling some of the suffocating regulatory burdens community banks face, they are better able to unleash their full economic potential to the benefit of their customers and communities," Independent Community Bankers of America® (ICBA) President and CEO Rebeca Romero Rainey said in a statement. "ICBA thanks Congress for passing this crucial bipartisan bill, along with the thousands of community bankers, affiliated state associations and other industry allies who have fought for years for substantial regulatory relief that will strengthen economic growth, job creation and consumer protection in local communities."
This story has been updated.
Liz Dominguez is RISMedia's associate content editor.