The Democratic characterization of Sen. Richard Shelby’s (R-Ala.) draft reform bill, Regulatory Relief and Protection of Consumer Access to Credit, as “a sprawling industry wish list of Dodd-Frank rollbacks” is complete nonsense. The proposed Dodd-Frank reforms are focused and balanced. Some changes make needed repairs to sloppy legal language in the original law while others provide clear main-street benefits by cutting unproductive and unnecessary regulations that reduce credit availability. Nothing in the bill can be construed as a “Wall-Street” giveaway and there is no risk that the changes will endanger the financial system.
One criticism that has surfaced is the proposed changes to the Qualified Mortgage or QM rules. If a mortgage qualifies as a QM loan, a bank gains legal protections against borrower lawsuits should the mortgage default.
The Shelby bill introduces a new category of qualified mortgages ― mortgages originated and held by financial institutions. Like existing QM loans, this new QM category cannot have high-risk features like interest-only, negative amortization or 40-year terms, and the lending institution must still document borrower income, employment, assets and credit history. The proposal recognizes the common-sense notion that if a banker is willing to make and hold a mortgage loan, we should trust the bank’s professional assessment of the borrower’s ability to repay the loan. There is no need to require a slew of additional government rules to constrain the lending process.
A second QM rule changes the treatment of escrow payments for property insurance. To qualify as a QM loan today, the upfront cost of a mortgage must be less than 3 percent of the loan principal. The Shelby proposal would discontinue the current practice of treating property insurance escrow payments required at closing as contributing to the 3 percent limit. Property insurance is not a mortgage cost, so it should not be included in the QM cap on mortgage origination costs.
A final QM change impacts mortgage availability for manufactured housing (mobile homes). The heightened risk of making loans without land as collateral, and the fixed costs of processing small mortgages render many manufactured housing loans “high-cost.” Under existing laws, banks that report making a significant number of high-cost mortgages are subjected to extra examination scrutiny, and these loans do not qualify for QM status. The Shelby proposal seeks to improve credit availability for manufactured housing by raising the annual percentage rate threshold for “high-cost” designation from 8.5 percent to 10 percent, and moving the loan size threshold from $50,000 to $75,000.
None of these changes diminishes the QM rule, but instead, these updates will enhance the availability of mortgage credit without reducing consumer protection or the safety and soundness of the banking system.
When it comes to reforming banking safety and soundness regulations, the bill offers sensible compromises. First, it establishes an “examination ombudsman” ― and independent office where banks can voice concerns about the supervision process. Many features of the Dodd-Frank Act give bank regulators tremendous discretion in the supervision processes, but no avenue for banks to appeal supervisory assessments. It remains to be seen whether an independent examination ombudsman is the best solution for this problem, but it is a sensible way to address this problem.
The Shelby proposal also includes direct reductions in bank regulatory burden. For example, it raises the size of banks that are permitted to go 18 months between examinations provided they have good examination ratings. It reduces the detail required in two of the four quarterly regulatory reports banks must file — again, only for banks with good exam ratings. Because the Volcker rule imposes massive costs of compliance, the proposed legislation exempts institutions with under $10 billion in assets from the rule because few if any of these institutions engage in any proprietary trading. And the proposal mandates studies to identify further efficiencies.
Other proposed changes impact the designation of systemically important financial institutions. Currently, all bank holding companies larger than $50 billion in consolidated assets are subjected to enhanced supervision and regulation by the Federal Reserve. By now, it is widely appreciated that this Dodd-Frank threshold is too low ― a $50 billion bank holding company is nowhere near systemically important. The Shelby compromise revises the threshold to $500 billion, and requires the Federal Reserve to identify bank holding companies between $50 and $500 billion for possible designation. The Financial Stability Oversight Council (FSOC) must investigate these candidates and designate institutions that are subject to enhanced Federal Reserve supervision and regulation. Since the FSOC still has the power to designate any and all bank holding companies larger than $50 billion, it is hard to see how this is a Wall-Street giveaway.
The Shelby bill also proposes improvements for the FSOC. FSOC governance will be improved by allowing more officials from FSOC member agencies attend FSOC meetings and have access to FSOC materials — not just the heads of FSOC agencies. The bill also proposes changes in the FSOC designation process that that will apply to bank holding company designations as well as designations of non-bank financial institutions. These changes will improve transparency and give companies under designation consideration a plan for changes that could forestall their designation.
Regarding changes to the Federal Reserve System, the proposal is far from radical. It requires the Fed to provide additional detail in its semi-annual Humphrey-Hawkins briefings, reaffirms the Dodd-Frank duty to report semi-annually on supervisory activities, establishes a new Fed insurance advisory committee, and, for the first time, gives Federal Reserve Board Governors small staffs of their own. The bill also reassigns responsibility for setting the interest rates on bank reserves held at the Fed to the Open Market Committee, and it proposes that the head of the Fed Bank of New York be confirmed by the Senate. Any further changes are left for later, after the results of studies on how to modernize the regional structure of the system as well as on the Fed’s involvement in supervisory activities.
It’s hard to imagine how any of these proposals are Wall-Street giveaways, or radical attacks on Fed independence or wish list plums for the banking industry. The reforms look like a positive and balanced start at fixing the negative economic fallout created by the Dodd-Frank Act.
from AEI » Latest Content http://ift.tt/1B1NP6d
0 التعليقات:
Post a Comment