The Uncertain Future of Dodd Frank

While it may not be the ‘headline-grabber’ that the Administration’s (for now, failed) healthcare overhaul has been, waiting in the wings for the spotlight remains the President’s long-standing promise of overhauling 2010’s Dodd-Frank financial legislation.

Throughout last year’s campaign, and on into this past spring, President Trump promised that an overhaul of the controversial legislation was on the horizon; in the spring, the President described the changes as “a very major haircut”. In late April, the President went even further, suggesting to a gathering of CEOs that a full repeal of Dodd-Frank remained a possibility.

For its part, the Administration has publicly supported the GOP’s ‘Financial Choice Act’, which calls for the abolition of Dodd-Frank; Treasury Secretary Steve Mnuchin’s department also recently released a report calling for several financial reforms, many of which could impact the mortgage lending community. On several occasions, the President has also directly linked his Administration’s efforts to cut regulations with the record-breaking stock market and increase in business confidence since he assumed office.

In a July interview with the New York Times, President Trump restated his intention to roll back many of the Obama-era financial regulations, which he has frequently accused as “choking” economic growth.

The president told the newspaper that, in terms of financial regulations, “you don’t’ want to choke, right? People can’t even get loans to buy a pizza parlor.”

In a report issued earlier this year by his department, Treasury Secretary Mnuchin outlined several recommendations designed to assist facilitating mortgage capital into the markets. That report came on the heels of an Executive Order signed by Trump soon after he took office, mandating that Treasury examine financial laws and regulations that will promote economic growth and, where required, roll back current regulations.

Mnuchin and representatives of the Treasury Department have held several meetings over the last few months with a wide range of stakeholders, including representatives from the banking sector, regulators, analysts and financial investors.

Mnuchin has frequently echoed Trump’s comments about the importance of reviewing—and often rolling back—all regulations that could negatively impact financial growth; a major tenet of Trump’s plans for overhauling the tax system is based on the idea of achieving at least 3-4 percent annual GDP growth. Failure to achieve that economic growth goal could imperil all of Trump’s economic plans, as well as balloon the federal deficit if massive tax cuts also occur.

Another potential target of Trump’s Treasury Department revisions is likely the Consumer Financial Protection Bureau (CFPB); that same Treasury report also called for “reforms” of the CFPB. The report is critical of the CFPB’s “substantial authority” as being “unduly broad, ill-defined, and susceptible to abuse.”  The Treasury report also calls for the CFPB’s Director to be “removable at will by the President”, or at a minimum, restructuring the bureau as an independent, multi-commission or board” to serve as a check on it’s power.

In terms of the lending industry, the Treasury report cites “tight mortgage lending” in the private sector as warranting further study of regulations—and how fewer regulations might help alleviate that situation. In addition, the report found that increased lending regulations have also “significantly increased” the cost of loan origination and servicing—which are then passed on to borrowers via higher mortgage rates.

In keeping with the Administration’s view that there have been too many regulations “choking” financial growth, the Treasury report states that over-regulation of the financial sector has also resulted in “inhibiting” lenders’ willingness to loan and made them overly risk-averse.

For its part, the financial sector has had a mixed reaction to the Treasury report—although it has generally been supportive of the Administration’s moves towards de-regulation.

Looking ahead, there is likely a limit to how much financial de-regulation can take place simply by ‘Executive Order’, and real, lasting reform will require passing legislation in Congress.

As recently witnessed with the healthcare debate, that is easier said than done—and therefore it may yet be some time before the Administration achieves its ultimate goal of financial reform and changes to either the Dodd-Frank Act or the CFPB.

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