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 that looks to roll back many Dodd-Frank Wall Street Reform and Consumer Protection Act regulations imposed in 2008 following the financial crisis—is currently on its way to President Donald Trump’s desk to be signed into law.
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 hope is that the bill will allow smaller lenders to be more community engaged, hopefully providing greater access for mortgage credit to consumers.
The National Association of REALTORS® (NAR) has long supported the bill and ahead of the vote 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
NAR believes that the bill 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. 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, claiming that the 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.
In addition, the Mortgage Bankers Association (MBA) applauded the House for its passing vote, claiming this bill will protect consumers and provide greater access to mortgage credit. Which, as we know, a hard balance to achieve. Many market participants, from real estate professionals, to investors, to regular citizens, became very concerned. “Apparently we have not learned from the mistakes of the past. Lessening regulations will certainly put all of us at risk for another market crash” stated one seasonal real estate professional.
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.
However, that sentiment is not shared by all participants. “I am personally concerned that the people in Congress have had a case of amnesia and forget the recession and what happened in its aftermath. It is not going to help to change anything for small community banks since most of them don't have the assets to provide loans to begin with and they are usually just fronts for selling off those loans to the large banks anyway. All it does is provide the local bank a chance to add charges on top of another loan for the cost of originating it. They rarely service those loans so that money doesn't go into their local economy. Lessening the standards also will mean that those mortgage-backed securities will become riskier, as they did before the recession, and with this "amnesia' likely also affecting the banks - who, by the way, have made all their lawsuit DOJ paid funds back already - and riskier loan products will be given out. Get ready for the next 3-5 years to be another roller coaster.” This opinion also shared by many market participants. Only time will tell.