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Houses Passes S2155, Unwinds Less of Dodd-Frank Than Hoped

The House of Representatives passed a sweeping overhaul of regulations included in the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act on Tuesday.  Senate Bill 2155, which passed the upper house in March, received a 258 to 259 vote in the House.  It now goes to the White House for what is expected to be certain presidential approval.

The bill did not go nearly as far as the House had hoped in rolling back Dodd-Frank.  Leadership agreed to vote on the compromise bill negotiated in the Senate between Republicans and Democrats only after a promise of a vote latter this year on other changes House members, especially House Financial Services Chair Jeb Hensarling (R-TX) were demanding.

According to Bloomberg, the legislation gives smaller banks relief from post-crisis rules that they've decried as burdensome and costly and the higher ceiling required to subject banks to stricter Federal Reserve oversight would free companies such as American Express and SunTrust Banks from higher compliance costs associated with being considered too big to fail.

While the full measure of the final bill will not be known until new rules are formulated and while there were probably some changes from Senate version, the Congressional Research Services has outlined the bill's changes to mortgage related regulations.

Most of those impact Dodd-Frank's Title XIV. Title I of the new law contains 10 sections that would amend rules that affect relatively small segments of the mortgage market.  In some cases, the analysis says, the bill would remove perceived regulatory barriers to the efficient functioning of specific segments of the mortgage market. Other provisions attempt to balance safety and soundness concerns with concerns about access to credit.

Under Dodd-Frank, small institutions have a Small Creditor Portfolio Option that allows them different pathways for creating a Qualified Mortgage (QM) under Consumer Financial Protection Bureau rules. That exemption applies to mortgages originated and held in portfolio by institutions with less than $2 billion in assets and originating fewer than 2,000 mortgages each year. 

Section 101 of the new law raises the ceiling to $10 billion and eliminates origination limits but also restricts the new option to insured depositories rather than to both depository and non-depository lenders.  Eligible lenders must hold the loans in portfolio for the loan's lifetime rather than for three years.  Lenders would still have to comply with product-feature restrictions, but they would be less stringent than under current rules.  S. 2155 would relax also the prescriptive guidance regarding documentation of borrower qualifications.

The bill attempts to address recent allegations of serious shortages of qualified appraisers, especially in rural areas.  Section 103 sets criteria for waiving certain appraisal requirements for federally related loans where this is a problem.  

Section 104 would exempt banks and credit unions from certain Home Mortgage and Disclosure Act (HMDA) reporting requirements, generally those that were imposed by Dodd-Frank after the original HMDA was enacted. The exemption will apply to institutions that originated fewer than 500 open-end lines of credit in each of the preceding two years and achieve certain Community Reinvestment Act compliance scores.

Section 106 of S 2155 would allow certain state-licensed mortgage loan originators (MLOs) who are licensed in one state to temporarily work in another state while waiting for the new state to approve their license.  It also would grant MLOs who move from a depository institution (where loan officers do not need to be state licensed) to a non-depository institution (where they do need to be state licensed) a grace period to complete the necessary licensing. 

Other changes incorporated into S 2155 include exempting more securities exchanges from state regulation, exclusion of certain defaulted student loan debts from credit reports, exemption of banks with under $10 billion in assets from the Volcker Rule and certain other small banks from existing risk-based capital ratio and leverage ratio requirements.

There are also provisions subjecting credit reporting agencies to additional requirements and relieving banks with assets between $100 billion and $250 billion from enhanced prudential regulation.

Housing News Updates are provided in partnership with Mortgage News Daily.