The President signed a bipartisan bill last week that will roll back some of the Dodd-Frank rules that concerned thousands of small- and medium-sized banks. Enacted as part of the 2010 Dodd-Frank law to curb the risky behavior that led to the 2008 financial crisis, Republicans and Democrats have been working to “tweak” the law even before Trump was elected, according to the Wall Street Journal. Most of the changes apply to community banks, credit unions and some larger “regional” banks.
“We commend members of Congress for passing this bipartisan legislation to level the lending playing field for community banks and credit unions,” says NAR President Elizabeth Mendenhall. “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.
The Economic Growth, Regulatory Relief, and Consumer Protection Act contains several provisions that could ease mortgage credit through reduced regulatory burdens on smaller community banks and credit unions. Prior to Congress’ vote, the National Association of REALTORS® sent a letter to the House Representatives to express its support for the bill. The association says having safe, affordable mortgage credit available from small, local lenders is key to a thriving housing market.
The bill also contained several other provisions related to housing, such as requiring Fannie Mae and Freddie Mac to evaluate and consider credit innovations, like adopting alternative credit scoring models. Currently, the mortgage giants’ credit scoring models do not take into account factors such as whether borrowers have paid their rent or utility bills on time. NAR advocates say that adopting newer, more predictive and inclusive credit scoring models could help expand access to mortgage credit and homeownership to first-time borrowers and those who have limited credit histories.
The bill also gives the Bureau of Consumer Financial Protection the authority to regulate Property Assessed Clean Energy, or PACE, loans and requires lenders to corroborate a homeowners’ ability to repay the loans that are levied as tax assessments on their homes. Currently, PACE loans are not required to conform to ability-to-repay standards or certain consumer home mortgage disclosures. As such, some borrowers may enter into contracts for the loans to make energy efficiency upgrades without fully understanding the impact on the future resale of their property, NAR notes.
The association says the commercial real estate market will also benefit from the bill. Congress provided clarity on some requirements of commercial lending, such as those imposed upon acquisition, development, and construction loans. The bill also excludes manufactured housing retailers and sellers from the definition of a loan originator (as long as they don’t receive compensation for the loan application).