We know that president-elect Donald Trump, as a businessman, probably detests regulations as much as any other business owner. While protective, some go too far and tack on extra costs to consumers. You really need a balance — enough law to protect the consumer and punish morons who prey upon the unsuspecting, but not enough to make the burden unbearable. I have seen this happen first hand in healthcare — in fact, mountains of regulations are one reason why health care costs are so bloated.
As I wrote back in the fall of 2011, Dodd-Frank is a good idea gone rogue. Dodd-Frank is like nuking an entire apartment complex to get rid of bedbugs in one small 300 square foot unit.
Yes, underwriting rules and loans to “marginal” lenders were out of control and led to the housing bust that brought down our economy. Lenders played “hot potato”, making and packaging subprime loans and selling them off to investors until, when the truth came out, the last investor got screwed because he was left holding the hot potato — a bunch of bad loans. Of course, the fact that the ratings agencies messed up on their projections didn’t help, where is their slap? The fact that lenders were pushing ARMs and interest-only products didn’t help. And now those banks are tighter than Scrooge about lending.
But Dodd-Frank is leaving the details up to a bunch of federal regulators. First of all, we did not elect these federal regulators so I find this almost bordering on unconstitutional. Secondly, what they are going to do will make it harder for people to get mortgages and further depress the housing market. You must know that the credit crunch is about 40% of the problem with the housing market. Bank lending is down by 9% even though bank’s financial profits have risen by 136%. Lending has fallen in 10 of the past 12 quarters despite the bailout. (I’m glad the national press is starting to cover this: we bailed out Wall Street in exchange for loans on Main Street, that ain’t happening.) Dodd-Frank is putting lenders on the hook, requiring them to retain a share in the risk in mortgages they sell to investors. In THEORY, that sounds great — just like taxing millionaires.
Well, according to HousingWire, Donald Trump’s transition team and their website say the incoming president plans to dump Dodd-Frank completely. This could be very good for the housing market. Or would it?
Under a section titled “Make America Great Again,” the transition team lists the three main tenets of the future president’s plan: Making America Secure Again; Getting America Back To Work Again; and Government for the People Again.
Each of those main sections has several subsections, and those in the financial services industry should pay close attention to the “Getting America Back To Work Again,” as it contains much of Trump’s plan for the economy.
“Financial markets are vital to the American economy. Capital markets bring investors together with creators to fund new ideas and fuel economic growth,” the website reads under a subsection entitled “Financial Services.”
“Banks and other lenders provide funding to small businesses and mortgage borrowers to help fund the American Dream,” the website continues. “Federal policy should focus on free enterprise, while protecting consumers by policing markets for force and fraud. Both Wall Street and Washington should be held accountable.”
The Trump website then goes on to discuss the impact of the Dodd-Frank Act, and how the Trump administration will work to replace it.
The website says Dodd-Frank is a “sprawling and complex piece of legislation that has unleashed hundreds of new rules and several new bureaucratic agencies.” They include the Consumer Financial Protection Bureau in the pile and blame all these rules for our slow economic growth.
“Paychecks have been stagnant. Savings are being depleted, millions are unemployed or underemployed, and millions more have dropped out of the workforce altogether,” the website continues. “Economic growth remains below 2%, about half the historic average. The big banks got bigger while community financial institutions have disappeared at a rate of one per day, and taxpayers remain on the hook for bailing out financial firms deemed ‘too big to fail.’”
Bureaucratic red tape and Washington mandates, it says, are not the answer. And so, the bi-partisian work of Mr. Dodd and Mr. Frank will go. Mortgage companies and banks have spent millions of dollars to get in compliance with this law. I wonder what they will have to spent to unravel it?
A movement is already underway in Washington to repeal and replace Dodd-Frank, introduced by House Financial Services Committee Chairman Rep. Jeb Hensarling, R-Texas. The bill is billed as a “pro-growth, pro-consumer” alternative that would bring significant reforms to the CFPB but end taxpayer funded bailouts of large financial institutions, reduce regulation, but still impose tougher penalties on those who commit fraud as well as hold Washington regulators more responsible. No longer will regulators be able to “look the other way”, The bill is called the Financial CHOICE Act, and it passed the House Financial Services Committee this fall.
Has Dodd-Frank impeded your business or home sale? Would it be another burdensome cost to now dismantle all the changes already made to be compliant?