May 24, 2018.
On Tuesday, the U.S. House of Representatives voted to roll back the banking regulations in place since the recession of 2008. Overturning the historic Dodd-Frank Act has a major impact on the banking sector, with some effect on the average consumer’s finances. Since the regulatory rollback signifies a steadily recovering economy, it’s also likely to increase motivation among homebuyers.
Did Trump’s ‘big number’ happen? Rollback changes for consumers and banks
Passing the bipartisan bill, officially called the Economic Growth, Regulatory Relief and Consumer Protection Act (S. 2155), creates a ripple of small-to-large changes. Here are the takeaways:
- Not a total rollback. The 2010 changes made to the Dodd-Frank Act were not reversed completely. While Barney Frank (D-Mass.), a former Congressman and one of the authors of the 2010 measure, opposed the rollback, he said the changes in the bill were “small.” Frank contradicted Trump’s promise to “do a big number” on the Dodd-Frank Act of 2010.
Free credit freezes for all. The new bill waves the $10 fee and grants everyone the right to a free credit freeze, providing protection against another Equifax-like data breach.
- Looser regulations for many large banks. The new bill lowers the threshold of big bank assets subject to annual Federal Reserve stress tests. Now, only 12 major banks are as strictly regulated, instead of the former 38.
- Looser regulations for smaller banks. Banks with less than $10 million in assets are now exempt from the Volcker Rule that discourages reckless trading by prohibiting hedge fund and private equity investments, as well as proprietary trading.
- Lower cost of consumer credit. Lowering the liquidity and frequency of oversight will help reduce costs for large banks, ultimately helping to lower the cost of credit granted to consumers.
- Support for loan officers transferring from a bank to a mortgage company. New loan officer licensing provisions will allow loan officers to move between institutions and/or states. Transferring loan officers have a licensing grace period, giving them time to make career changes without the pressure of waiting for state approval before they can originate.
“Although there is a little bit of change in this bill for everyone in the real estate finance market, ranging from appraisers to manufactured housing companies, the big winner from this bill is the large banks,” Andrina Valdes, Executive Sales Leader at Cornerstone Home Lending, says. “It’s far from the sweeping changes that were promised. But it’s a good initial step to help swing the regulatory pendulum back toward the middle.”
Realtors support it, buyers benefit: 4 ways the rollback impacts mortgage
During Senate debates of the rollback two months ago, the National Association of Realtors made a statement. The NAR backed the new bill because of its potential benefits for both homebuyers and the housing industry. The Mortgage Bankers Association, the Independent Community Bankers of America, and the National Association of Home Builders also publicly supported the bill.
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“This bipartisan legislation includes several provisions that are positive steps for our nation’s housing sector,” Elizabeth Mendenhall, NAR President, wrote in a letter to the Senate in March 2018 that voiced her support for S. 2155. “Balanced financial regulation and appropriate consumer protection will result in a more vibrant housing market and overall economy.”
House Financial Services Committee chairman Rep. Jeb Hensarling (R-Tex.), who pushed for an even more extensive rollback, described S. 2155 as the “most pro-growth banking bill” of our generation. Hensarling also called the bill’s passing a historic economic opportunity.
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As the rollback stimulates the housing market, homebuyers and realtors may see at least four potential benefits:
- Looser mortgage regulations. The new bill increases protection for banks and credit unions with assets less than $2 billion up to $10 billion. A larger buffer against legal liability allows banks and lenders to write more mortgages. Lenders, as a result, could take on added risk and lend to a wider range of borrowers.
- More mortgage approval for borrowers with debt. Homebuyers with larger amounts of debt — above the standard 43 percent DTI who normally wouldn’t meet borrower requirements — could now be approved and can benefit. Providing more benefits to borrowers, the bill will also require GSEs Fannie Mae and Freddie Mac to consider more inclusive credit factors, like alternative credit scoring models. Taking into account rent and utility bill payment history could open approvals to more first-time buyers and buyers with limited credit.
No waiting period if a borrower’s APR drops. A subtle change that’s helpful to loan officers and beneficial to their borrowers, the typical three-day waiting period no longer applies to borrower loans if the APR decreases after the most recent Closing Disclosure is issued. Expediting this wait time could prevent unnecessary last-minute delays for loan officers and borrowers.
- Homebuyers can act now instead of waiting. Mortgage rates are still historically low but are anticipated to rise, especially as the Federal Reserve rate is predicted to increase several times this year. More homebuyers may meet qualifications to buy a home now, locking in a lower interest rate and seeing home equity increase as rates rise throughout the year.
With the economy on the upswing, now could be the right time to buy or trade up. Find out how much house you can afford in 15 minutes — and get in touch with your loan officer at a click.*
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For educational purposes only. Please contact a qualified professional for specific guidance.
Sources are deemed reliable but not guaranteed.