One of President Trump’s major campaign stumping points was his promise to eliminate regulations that are preventing businesses from growing and innovating. So it came as no surprise that earlier this month he signed the “Presidential Executive Order on Core Principles for Regulating the United States FInancial System.” Immediately, news agencies began reporting Trump’s order as the beginning of the end for the Dodd-Frank Wall Street Reform and Consumer Protection Act.
As a refresher: Dodd-Frank was enacted in 2010 as a response to the 2008 financial crisis. It was intended to decrease various risks in the financial system, from banking to subprime lending and more. For the housing industry, perhaps the biggest effect was the creation of the Consumer Financial Protection Bureau (CFPB). This bureau consolidated the oversight and enforcement of consumer protection laws, and brought about a myriad of regulatory changes from loan officer lending and compensation to service standards, to the TILA-RESPA Integrated Disclosures (TRID) and more.
The reactions to President Trump’s executive order have been mixed, as you would expect. Supporters of Dodd-Frank say the act protects customers by putting safeguards in place to help avoid another financial crisis and take the potential for another Wall Street bailout off the table. According to them, a rollback of Dodd-Frank will leave customers facing predatory lending and financial practices.
However, Dodd-Frank opponents argue that the reforms were unnecessary in the first place and have actually worsened what it aimed to fix. In fact, they say that stricter lending standards and capital reserve requirements have accelerated the decline of smaller community banks and actually make it harder for people who need loans the most to get them.
It’s important to note that some experts say Dodd-Frank is more than likely not going to be fully repealed. According to a recent article in Forbes by Robert Pozen, a repeal would require 60 votes in the Senate, and Republicans hold only 52 of those spots. But the current administration can repeal specific parts of the act because those actions require only a Congressional majority, which the Republicans do hold. That means big changes can occur without blowing up the act entirely, including assigning new agency heads who can spearhead a lot of financial deregulation.
So what will it mean for the mortgage and housing industries if/when Dodd-Frank rollbacks occur? Experts speculate that we’re most likely to see new restrictions on the CFPB, more flexibility and less regulation for large financial institutions, and a significant easing of regulations for smaller banks. That last point is something that both Republicans and Democrats can get behind, because, under the Dodd-Frank Act, “the cost of regulatory compliance as a share of operating expenses is two-and-a-half times greater for small banks than for large banks,” according to the 2012 Chairman of the Community Bankers Council.
The banking and financial industries—and, by extension, the mortgage industry—have become some of the most heavily regulated in business. President Trump’s actions may be the beginning of some broad rollbacks that will hopefully protect customers while making it easier to grow business. However, if rollbacks do occur, the effects will be myriad, complicated, and won’t happen overnight. As the year progresses, SoftVu will keep you posted on what’s happening and how it will be expected to affect our industry.