MBA Letter Supports Consideration of Dodd-Frank Reform Bill

Mike Sorohan

May 02, 2017

Ahead of a House Financial Services hearing this morning to consider a bill that would make sweeping changes to provisions of the Dodd-Frank Act, the Mortgage Bankers Association sent a letter to committee members offering support for introduction and consideration of the bill.

H.R. 10, the Financial CHOICE Act of 2017 (, introduced by Committee Chairman Jeb Hensarling, R-Texas, would provide regulatory relief to financial institutions that maintain higher capital levels; restructure the Consumer Financial Protection Bureau by taking away its supervisory functions and allowing the president to fire its director at will; and replace Dodd-Frank's "too big to fail" provisions with a new chapter of the bankruptcy code designed to liquidate large, systemically important financial firms that fail. The bill also contains MBA-supported legislation to permit transitional licensing under the SAFE Act as well as higher tolerances for points and fees under the Qualified Mortgage rule.

"MBA supports the introduction and consideration of the Financial CHOICE Act and looks forward to working closely with Chairman Hensarling, Ranking Member Waters, and all the members of the Financial Services Committee as this bill continues to advance through the legislative process," wrote MBA Senior Vice President of Legislative and Political Affairs Bill Killmer.

The following bullet points summarize MBA's positions on various aspects of the bill.

Capital Requirements
MBA said too often U.S. bank regulators have enacted regulations and constraints that were initiated by the Basel Committee. "One size fits all simply does not work when designing bank regulatory regimes," MBA said. "MBA believes the bill should also require regulators to fix what is currently wrong with the regulatory regime." MBA added the "punitive treatment" of mortgage servicing rights under the Basel III risk-based capital standards threatens to undermine the value of this important asset, with adverse implications for the entire mortgage finance chain.

Consumer Financial Protection Bureau
The Financial CHOICE Act proposes to fundamentally restructure the Consumer Financial Protection Bureau and renames it the Consumer Law Enforcement Agency. MBA continues to support the assignment of several consumer financial protection laws to a single agency such as the CFPB or the new CLEA. However, MBA also supports refinements of the Bureau's makeup and authorities to better address consumer needs and otherwise carry out its responsibilities.

"MBA expressed disappointment that the bill retains a single director governance structure at the CLEA. "We believe the governance of the current CFPB would be vastly improved if Congress replaced its single director with a bipartisan 5-member commission," MBA said. "This is the governing structure for numerous independent regulatory agencies including the Federal Deposit Insurance Corporation, the Securities and Exchange Commission and the Consumer Product Safety Commission, to name a few."

Commercial & Multifamily Real Estate--Changes to HMDA Reporting
MBA supports the thrust of changes to the Home Mortgage Disclosure Act under provisions of the Financial CHOICE Act. It supports the bill's limitation on data points that can be required under HMDA to those that were collected at the time the Dodd-Frank Act was passed, effectively negating the 2015 expansion of disclosure at least pending the Comptroller General's study or re-identification and other risks.

"In addition to those beneficial changes, we continue to believe that HMDA, as a consumer lending disclosure requirement, should not apply to commercial real estate, including multifamily real estate," MBA said.

High Volatility Commercial Real Estate Exposures (HVCRE)
MBA said the final HVCRE rule issued by bank regulators suffers from a lack of clarity and from flaws in the criteria for determining when an acquisition, development and construction loan is or is not HVCRE. "Those problems have had and are having adverse impacts on bank lending that are not justified by the credit risk associated with such loans," MBA said. "Consequently, MBA strongly supports the relief from this and other Basel III capital requirements that the Financial CHOICE Act would provide to strongly capitalized, well managed banking organizations."

Liquidity Coverage Ratio
In September 2014, the banking agencies released the Liquidity Coverage Ratio (LCR) final rule. MBA opposed and continues to oppose the LCR treatment of commercial mortgage-backed securities and recommends that CMBS no longer on a bank's balance sheet be excluded from the LCR calculation. Consistent with that long-held position, MBA supports the Financial CHOICE Act's relief from this and other Basel III capital requirements under Title VI--Regulatory Relief for Strongly Capitalized Well Managed Banking Organizations. "Moreover, we would support including in the bill language that would exclude CMBS from the LCR calculation for banks that will remain subject to the LCR rule," MBA said.

Net Stable Funding Ratio
"MBA continues to hold that position and supports the Financial CHOICE Act's relief from liquidity requirements for strongly capitalized well managed banking organizations. We would also support language that would direct federal banking agencies not to implement the Basel Net Stable Funding Ratio proposal in a final rule," MBA said.

Step-in Risk
MBA supports the Financial CHOICE Act's relief from both capital and liquidity requirements for strongly capitalized, well managed banking organizations. "We would also support adding language that would direct federal banking agencies not to implement the Basel Step-in Risk proposal in a final rule," MBA said.

Fundamental Review of the Trading Book
In January 2016, the Basel Committee issued its final Consultative Document on the Fundamental Review of the Trading Book. MBA strongly opposes the Basel Committee's FRTB proposal and therefore supports the Financial CHOICE Act's relief from capital requirements for strongly capitalized, well managed banking organizations.

Removing Insurance Companies from Federal Regulation
Under Section 113 of the Dodd-Frank Act, the Financial Stability Oversight Council is authorized to designate non-banks, including insurance companies, as Significantly Important Financial Institutions, which are then subject to consolidated supervision by the Federal Reserve and enhanced prudential standards. MBA is concerned that SIFI/SIIC designations and the proposed federal regulatory regime for SIICs could create unwarranted impediments to life companies' ability to continue to be a key source of capital to commercial/multifamily real estate markets.

Risk Retention for Commercial Real Estate
MBA said it appreciates the provision in H.R. 10 that addresses nonresidential risk retention and its recognition of CMBS is an important source of capital for commercial and multifamily real estate.

The hearing begins at 10:00 a.m. ET in 2128 Rayburn House Office Building and can be accessed online at

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