MBA Calls for Phased Dodd-Frank Enforcement

Last Tuesday, MBA President and CEO David H. Stevens sent a letter to CFPB Director Richard Cordray calling for a grace period of six to 12 months before the CFPB takes enforcement actions under any of the new mortgage rules implementing the Dodd-Frank Act. The letter details the tremendous effort that is required to implement the various rules and have questions answered, while also keeping up with the CFPB’s additional clarifications and revisions. Given the liability that is attached to violations, MBA believes that while an extension of the effective dates of the rules is the ideal solution, a supervisory grace period for companies that have demonstrated good faith efforts to comply would be extremely helpful.

Capital Commentary
- by Kirk Willison
kwillison@archmi.com
www.archmi.com
Direct 202-714-8606

It’s February — officially the shortest month of the year. Unofficially, it’s the longest if your job is reading the thousands of pages of comment letters submitted in response to the banking agencies’ Basel III Endgame proposal.

Case in point 1: The Bank Policy Institute and the American Bankers Association submitted a 314-page joint letter.
Case in point 2: When I asked ChatGPT to summarize individual letters, many were too long — even for AI.

Numerous letter writers worry that homeownership for low- and moderate-income borrowers will become even more out of reach unless the proposed rules are changed.

We highlight ways to improve the rule so it won’t unduly burden banks or borrowers.

1-Big Thing: There Goes the House
Think buying a home is expensive now? Wait until banks have to boost their capital levels thanks to the Basel III Endgame, the U.S. bank regulators’ spin on international capital standards for depository institutions.

Why it matters: U.S. regulatory agencies propose raising capital requirements on bank assets by up to 20 percentage points. It promises to send bank mortgage rates soaring and drive many to flee the mortgage origination business.

The big picture: Borrowers unable to make a large down payment will bear the burden of the rule change because high-LTV loans would be considerably more expensive for banks to hold in portfolio than they are today.

The current U.S. and Basel III (international bank regulations) capital frameworks enable banks to reduce the risk weights on high-LTV (above 80%) home loans if they are covered by mortgage insurance (MI). But the proposed Basel III Endgame does not take MI into account in risk-weight calculations.

By the numbers: 52% of bank-originated home loans are produced by the 31 large banks covered by Basel III Endgame.

The bottom line: Industry and housing advocates are apprehensive about the ramifications of the U.S. regulators’ proposal on low-wealth borrowers.

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MBA Calls for Phased Dodd-Frank Enforcement

Capital Commentary- by Kirk Willisonkwillison@archmi.comwww.archmi.comDirect 202-714-8606

Capital Commentary
- by Kirk Willison
kwillison@archmi.com
www.archmi.com
Direct 202-714-8606