Dodd's Reform Bill Faces Criticism from Industry Groups
By: Carrie Bay
As DSNews.com reported Monday, Senate Banking Committee Chairman Chris Dodd (D-Connecticut) has introduced new reform legislation that would create a new independent agency to set the rules for mortgages and other consumer loan products and place tight restrictions on how large lenders conduct their business.
Even though he lacks bipartisan support for the bill, Dodd says he’s moving forward to reach a compromise that can be passed, with a mark-up of the measure planned for next week. But already, mortgage industry groups are voicing their concerns with the reform package – the Consumer Financial Protection Bureau, in particular.
The Mortgage Bankers Association (MBA) faults the bill for heading down the “same wrong paths as the legislation” that passed the House late last year when it comes to an agency to oversee consumer protections. MBA argues that the patchwork of state and local laws governing mortgages only increases costs for both borrowers and lenders, and the trade group says Dodd’s bureau only reinforces that disparity because it has been given authority over lenders with assets of more than $10 billion, while leaving smaller institutions to the supervision of their existing bank regulators.
MBA Chairman Robert Story Jr., though, does commend Dodd for moving away from the “one size fits all” approach to risk retention by recognizing that certain underwriting requirements, loan types, and business models are inherently low risk.
“However, we believe the bill needs to be more explicit requiring regulators to provide specific exemptions for carefully underwritten, low-risk residential mortgages,” Story said.
Story added, “In order to ensure continued market recovery, we strongly urge Congress to consider the current safeguards that already exist within the commercial mortgage-backed securities (CMBS) market with regard to retaining risk.”
He noted that business-to-business transactions in the CMBS world involve “sophisticated borrowers,” and any attempt to impose a uniform risk retention could stymie efforts toward economic recovery.
R. Michael Menzies, chairman of the Independent Community Bankers of America (ICBA) rallied in favor of the bill’s sanctions to end “too big to fail” and enforcing rules on unregulated financial players to safeguard the system.
Menzies says the nation’s nearly 8,000 community banks have always made consumer protection a priority, and unlike Story, he says his organization supports having separate regulators to oversee smaller institutions mortgage lending practices.
“ICBA will continue working with Chairman Dodd to ensure that community banks are not disproportionately affected by any new regulator and that new consumer-protection regulations are consistent with safety-and-soundness requirements,” Menzies said.
The American Bankers Association (ABA) said it “opposes the new bill as it now stands and is suggesting a number of areas that need to be changed, including: the approach to consumer protection, which continues to separate prudential and consumer regulation; the elimination of the thrift charter; the elimination of the Federal Reserve’s authority over state member banks;…and the failure to address accounting issues in any fashion.”
Edward L. Yingling, ABA’s president and CEO, said, “We oppose this bill because it will subject traditional banks, which did not cause this crisis, to heavy new regulation, while non-banks will have even further competitive advantage. The future of traditional banks will be unnecessarily put at risk and their ability to provide the credit our economy needs will be undermined.”
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