Senate banking committee passes regulatory relief bill

The Senate Banking Committee on Thursday passed a broad Republican-sponsored financial bill that included provisions to do away with some regulations of Dodd-Frank on the mortgage industry.

Senators voted 12-10 along party lines for the Financial Regulatory Improvement Act of 2015, a bill sponsored by committee Chairman Sen. Richard Shelby, R-Ala., and supported by the banking and mortgage industries.

Republicans also rejected a Democrat-sponsored alternative that proposed reforms that made some targeted changes to loosen requirements for small banks and beef up oversight of lending to military service members.

During the debate, senators from both parties professed a willingness to work together for bipartisan reform that would provide regulator relief for community banks and improve access to credit.

“Our disagreements are over the scope of relief, not the need for relief from unnecessary regulations,” Shelby said. “Our approach to regulatory relief should not be prefaced on a reflexive desire to protect any particular statute from being changed. We should ask whether the current statutory environment is providing the needed protections while avoiding the unnecessary impediments to economic growth.”

Democrats characterized the bill as a rollback of consumer protections.

“We must not undermine the key protections that the law provides to prevent another catastrophe for our economy or for our neighbors who have saved money to buy a house,” said Sherrod Brown, D-Ohio, the ranking member. “Unfortunately,  the bill before the committee today would trample on many of those protections.”

The bill would make changes to the Federal Reserve and contains several provisions that affect midsized banks and the mortgage industry.

Among one of the larger changes, regulators would have the option to review banks with $50 billion to $500 billion in assets to determine if they are systemically important. Banks with more than $500 billion would be automatically considered of systemic importance, and thereby trigger greater oversight.

Several provisions would affect mortgage industry

As for the mortgage industry, banks would also be able to get the legal “safe harbor” protections of a qualified mortgage for most mortgage types if the loans are held on the bank’s balance sheets. Balloon loans would also be allowed.

The legislation would remove a controversial rule in new consumer disclosure rules effective Aug. 1 that automatically requires a minimum three-day waiting period if the rates change prior to closing. Under the regulation, the waiting period would be waived if the rates were reduced.

The Senate bill also would exclude the escrow payments for future insurance payments in the calculation of points and fees. Currently, these escrow payments are calculated within the three-point cap for a qualified mortgage. This has been called a technical error in Dodd-Frank.

Notably, the bill left out a controversial provision that House Republicans had included in their bill that would exclude charges from affiliated title companies from the points and fees calculation. The Senate bill would, however, direct the Government Accountability Office to study the impact of Dodd-Frank rules on the availability of mortgage credit.

The bill also would adjust the definition of a high-cost mortgage for manufactured homes. It would allow lenders to charge up to 10 percent, up from 8.5 percent, and also raised the loan amount to $75,000 from $50,000. The bill also would allow manufactured home retailers to originate loans without being licensed, so long as they do not profit from the loan proceeds.

The bill now faces an uncertain future, but more negotiations are expected. President Barack Obama has indicated that he will veto any bill that limits bank oversight and consumer protections in Dodd-Frank.