President Donald Trump came into office promising to scale back excessive federal regulation, and his announcement that he wants to reform regulations in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (known as Dodd-Frank) is an important step in that direction.
Passed in response to the 2008 financial crisis, Dodd-Frank was meant to protect consumers and the banking system, but its reach went too far. The implementation of this act has contributed to a lackluster recovery in the housing finance market and slowed economic growth overall. Lenders, particularly community banks, have had to comply with burdensome and costly Dodd-Frank provisions. These heavy regulations placed on lending institutions have restricted their ability to provide consumer mortgages and construction loans.
Trump’s announcement comes several months after House Financial Services Committee Chairman Jeb Hensarling (R-Texas) introduced the Financial CHOICE Act of 2016, which would roll back or reform significant components of Dodd-Frank. Hensarling is concerned about Dodd-Frank’s potential impact on housing production, home sales, and the overall economy. NAHB commends Hensarling for his efforts to loosen overly tight credit conditions, and it hopes policymakers refer to this legislation when they take on Dodd-Frank.
NAHB supports a provision within the Financial CHOICE Act that would prevent new financial rules from weighing too heavily on small businesses. Under this provision, financial regulators would have to conduct a cost-benefit analysis before issuing rules. And all financial regulations would be subject to the REINS Act (Regulations from the Executive in Need of Scrutiny)—meaning the rules would have to be passed by Congress before they are implemented.
NAHB also supports Financial CHOICE Act provisions that offer regulatory relief to community financial institutions. Community banks are the most common source of lending for home construction; they also provide home mortgage loans, including mortgages for first-time home buyers and consumers in rural communities. The Financial CHOICE Act spells out specific regulatory relief for these institutions, including reduced reporting burdens and due process protections. This should enhance credit availability for home buyers and support the long-term viability of community banks.
The Financial CHOICE Act includes other provisions that NAHB believes are worthy of consideration, namely reforms to the structure and authority of the Consumer Financial Protection Bureau and exempting certain multifamily mortgages from risk retention regulations.
NAHB will engage policymakers throughout the Dodd-Frank reform process. The association’s message is simple: careful, well-considered loosening of certain financial regulations will help builders to get loans, home buyers to access mortgage credit, community banks to prosper, and the overall economy return to full strength.
