The Senate passed a bill on Wednesday that aims to ease banking regulations, potentially making it easier for consumers to get a mortgage from a community bank or credit union.
With some bipartisan support, lawmakers’ approval of S. 2155 was expected. The bill rolls back various banking regulations put in place via the Dodd-Frank Act of 2010 following the mortgage crisis that roiled the U.S. economy a decade ago.
In simple terms, one of the Senate bill’s provisions would let smaller institutions — those with up to $10 billion in assets — offer mortgages that are not subject to some of the strictest federal underwriting requirements, as long as they meet certain other conditions.
“Where it likely will make a bigger difference is in rural areas, where big lenders don’t necessarily operate,” said Richard Andreano, a partner with law firm Ballard Spahr in Washington and head of its mortgage banking group. “It can be harder to get a mortgage in those places.”
“This opens up a window for the return of some of the reckless financial practices that caused the crisis,” said Yana Miles, senior legislative counsel for the Center for Responsible Lending.
Part of the problem with the mortgage crisis, however, was that some lenders sold mortgages with little or no effort to ensure the borrower could actually afford the loan. And once that loan was resold on the secondary market to investors, the originator no longer retained the risk.
To banking industry insiders, the bill’s requirement for the bank to hold onto the loan will help prevent the type of abuse that consumer advocates fear.
“If they hold on to … the credit risk, they probably underwrote the loan very carefully.”
“The bank will have done its due diligence. They are the one holding the loan and it will directly impact their bottom line,” said Joe Pigg, senior vice president of mortgage finance for the American Bankers Association. “If they hold on to … the credit risk, they probably underwrote the loan very carefully.”