The August 7th Note Investors Forum Meetup focus on:
TOPICS: Several New Case Studies
Where Does a New Note Investor Begin
Bring your questions, This will be an interactive meeting.
The August 7th Note Investors Forum Meetup focus on:
TOPICS: Several New Case Studies
Where Does a New Note Investor Begin
Bring your questions, This will be an interactive meeting.
Over the past few months, Mick Mulvaney has provided smaller indications about how much differently the Consumer Financial Protection Bureau will function under his leadership than it did under the bureau’s former director, Richard Cordray.
But Monday, Mulvaney fully revealed his plan to dramatically alter how the CFPB operates.
The CFPB on Monday released a new strategic plan, in which Mulvaney lays out how the CFPB will now operate and established new goals for the bureau.
“If there is one way to summarize the strategic changes occurring at the bureau, it is this: we have committed to fulfill the bureau’s statutory responsibilities, but go no further,” Mulvaney said in a statement. “By hewing to the statute, this strategic plan provides the bureau a ready roadmap, a touchstone with a fixed meaning that should serve as a bulwark against the misuse of our unparalleled powers.”
According to the CFPB, the plan “draws directly” from the Dodd-Frank Wall Street Reform and Consumer Protection Act, and “refocuses the bureau’s mission on regulating consumer financial products or services under existing federal consumer financial laws, enforcing those laws judiciously, and educating and empowering consumers to make better informed financial decisions.”
Included among the changes is that the CFPB will now focus on “equally protecting the legal rights of all, including those regulated by the bureau,” a tactic Mulvaney previously revealed in a memo to the CFPB’s employees.
Also, it appears that the only new rulemaking the CFPB will engage in will be to “address unwarranted regulatory burdens and to implement federal consumer financial law and will operate more efficiently, effectively, and transparently.”
As Mulvaney previously stated, the CFPB will no longer be “pushing the envelope” when it comes to new rules, regulations, or enforcement.
“Indeed, this should be an ironclad promise for any federal agency; pushing the envelope in pursuit of other objectives ignores the will of the American people, as established in law by their representatives in Congress and the White House,” Mulvaney says in the strategic plan. “Pushing the envelope also risks trampling upon the liberties of our citizens, or interfering with the sovereignty or autonomy of the states or Indian tribes. I have resolved that this will not happen at the bureau.”
In pursuit of this goal, the CFPB establishes a new mission that is much different from what it was previously.
Under Cordray, the CFPB’s mission (as taken from the CFPB’s previous strategic plan) was the following: “The CFPB is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives.”
The CFPB’s new mission, as laid out by the new strategic plan is this: “To regulate the offering and provision of consumer financial products or services under the Federal consumer financial laws and to educate and empower consumers to make better informed financial decisions.”
According to the new plan, the CFPB will accomplish its new mission by: seeking the counsel of others and making decisions after carefully considering the evidence, equally protecting the legal rights of all, confidently doing what is right, and acting with humility and moderation.
The new strategic plan also lays out new goals for the CFPB.
Previously, the CFPB had four goals:
Under Mulvaney, the CFPB’s new goals are:
Part of that first goal will be to “regularly identify and address outdated, unnecessary, or unduly burdensome regulations in order to reduce unwarranted regulatory burdens,” according to the plan.
Under the second goal, the CFPB lays out two objectives that are designed to help meet the goal, including protecting consumers from unfair, deceptive, or abusive acts and practices and from discrimination.
To meet that objective, the CFPB will “enhance compliance with federal laws intended to ensure the fair, equitable and nondiscriminatory access to credit for both individuals and companies and promote fair lending compliance and education,” and “strengthen prevention and response to elder financial exploitation.”
Additionally, under the “implement and enforce the law consistently to ensure that markets for consumer financial products and services are fair, transparent, and competitive” goal, the CFPB will “enforce federal consumer financial law consistently, without regard to the status of a person as a depository institution, in order to promote fair competition.”
Included in the strategies to achieve that objective is focusing supervision and enforcement resources on “institutions and their product lines that pose the greatest risk to consumers based on the nature of the product, field and market intelligence, and the size of the institution and product line.”
The third goal deals mainly with the CFPB’s internal operations, including safeguarding the CFPB’s data, maintaining a “talented, diverse, inclusive and engaged workforce,” and working to manage risk and promote accountability at the bureau.
To read the CFPB’s new strategic plan in full, click here.
Forbes Magazine published an article titled “How Do Homeowners Accumulate Wealth? ‘ October 14, 2015. The article was written by the chief economist for the National Association of Realtors, Lawrence Yun. He quoted the Federal Reserve…”The differences between buying and renting are massive. According to the Federal Reserve, a typical homeowner’s net worth was $195,400, while that of renter’s was $5,400. The data reflects 2013 and the next survey of household finances, which is conducted every three years..”…Based on what has happened since 2013 and projecting a conservative assumption of what could happen next year to home prices if we see only 3% price growth, the wealth gap between homeowners and renters will widen even further. The Fed is likely to show a figure of $225,000 to $230,000 in median net worth for homeowners in 2016 and around $5,000 for renters. That is, a typical homeowner will be ahead of a typical renter by a multiple of 45 on a lifetime financial achievement scale.”
To that Point, the Dodd-Frank Act is stunting this process. That is why the Seller Finance Enhancement Act — currently H.R. 1360 should be passed. This bill would make some minor focused and targeted changes to the rules governing the housing market to allow for more flexibility and greater consumer choice.
H.R. 1360 amends both the Safe Act and Dodd-Frank to allow up to twenty-four seller-financed transactions per year without the need for the seller to be licensed as a mortgage originator. It requires the Treasury Department to study the low-value home market over the next three years and report back to Congress with suggestions to improve the sales and financing of these homes.
What this bill does not do is remove any of the safeguards related to these transactions. Specifically, seller financers must still comply with the “ability-to-pay” portions of Dodd-Frank as well as the interest rate rules and the ban on balloon payments. Seller financers are currently limited to doing only three deals in a twelve-month period of time without obtaining licensing as a mortgage originator. This came as a result of the Safe Act taking us down to five and Dodd-Frank taking us down to three.
The key arguments in support of raising the number of seller financed deals to twenty-four per twelve-month period is that this number is a compromise reached after extensive negotiations in meetings between the National Association of Realtors and various mortgage and banking interests. Raising the number to twenty-four satisfies the needs of 85-90% of all those who do seller financing and allows the National Association of Realtors to remain neutral on the bill.
Some of the key proponents of H.R. 1360 are the original sponsor Roger Williams and original co-sponsor Henry Cuellar.
The Seller Finance Coalition is a lobbing group Capstone Capital USA supports and is a member of. It’s is to overcome the lack of knowledge as to how this problem is preventing people who, for various reasons, are not qualified by the banks to obtain capital needed to buy homes, or are looking to purchase a home in a market for which banks are either unwilling or unable to lend money.
A recent survey of consumers commissioned by the National Association of Realtors revealed that 80% believe that purchasing a home is a good financial decision (2015 National Housing Pulse Survey). Most consumers appear to already understand the simple math and the benefits of homeownership. Real Estate Market Place leaders all agree that home ownership steadily builds wealth. Seller financing is a way for more people to be able to accomplish this dream.
The Seller Finance Coalition http://www.sellerfinancecoalition.org/ is having a “FLY-IN” to lobby at Capital Hill July 18 – 19. Updates of that lobbying effort will be posted on this site. I will be a participant of that effort.
Last week, the U.S. House of Representatives voted to roll back a number of banking rules enacted in 2010 under the Dodd-Frank Act. The Dodd-Frank Wall Street Reform and Consumer Protection Act, known simply as “Dodd-Frank” for short, was passed in response to the housing crash and subsequent financial meltdown in 2007 and 2008. The legislation was arguably the most significant financial regulation adjustment since the reform bills that followed the Great Depression. Dodd-Frank has been hugely controversial since its inception because of the extremely heavy oversight it placed not just on the financial industry, but also due to the far-reaching effects of the federal entities it created, such as the Consumer Financial Protection Bureau (CFPB). Last week’s passage in the House of the “Financial CHOICE Act” could, if the bill also passes in the Senate, roll back many regulatory changes that have not necessarily protected consumers and that have made getting a mortgage far more difficult for the average homeowner.
Individual real estate investors were caught in the crossfire, so to speak, when then-President Obama signed Dodd-Frank into law in 2010. One of the biggest ways in which it affected real estate investors revolved around new regulation of seller financing, which the law categorized (appropriately) as creating mortgage notes. When a property owner seller-finances the sale of their property, they allow the buyer to make payments to them on the property rather than requiring a traditional bank loan. Dodd-Frank placed stricter rules than had previously been in place on how sellers could finance properties that they were selling to owner-occupants and required that companies and individuals who made more than three home loans each year hire a mortgage loan originator (MLO) to complete transactions. Dodd-Frank also affected how private lenders made their loans and changed how a number of investors and real estate instructors who had previously offered students and colleagues valuable “proof of funds” letters for transactions did business.
On the whole, however, Dodd-Frank mainly affected conventional homebuyers who found themselves unable to finance their primary home purchases via traditional 30-year-fixed mortgages because lenders were wary of the regulations and legislation. Many analysts blame the act for the “credit crunch” that has existed since 2008 as lenders backed off lending practices that they felt might open them up to litigation or create another wave of foreclosures in the future, but smaller players were less affected than many had initially feared. By and large, real estate investors adjusted their practices and then continued with business as usual.
If it was largely “business as usual” for investors once the initial furor over Dodd-Frank passed, what happens now that the current administration might succeed in repealing the act? According to House Financial Services Committee Chairman Jeb Hensarling (R-TX), the biggest effect of the CHOICE act will be to strip a great deal of power from the CFPB. The CFPB was originally intended mainly to protect borrowers from unscrupulous lending practices, but it has extended its reach far beyond that and into all aspects of the nation’s credit industry and into other “consumer protections” as well. Not surprisingly, such federal reach (or overreach, as many see it) has not been well-received in many business sectors where entrepreneurs, small-business owners, and investors feel unfairly targeted. “We will replace Dodd-Frank’s growth-strangling regulations…with reforms that expand access to capital,” Hensarling promised last week. He introduced the CHOICE Act to the House and has promoted it as an avenue to increase small businesses’ options for obtaining capital.
Most real estate investors and, indeed, most of the financial industry, have instinctively applauded the notion of a Dodd-Frank repeal because this population generally supports lower levels of federal oversight. President Trump, an astronomically successful real estate investor himself, has said repeatedly that “tight lending practices” and overzealous bank regulation in the wake of the financial meltdown have hindered a true economic recovery in the United States. Opponents to the repeal like Pamela Banks, senior policy counsel for Consumers Union, say that it could cause another financial crisis by “leaving Americans vulnerable to financial fraud and rip-offs” such as poorly-backed mortgage loans that precipitated the housing crash in 2007.
If the CHOICE Act passes the Senate, which is the next step for the bill if it is to become law, it will move to President Trump’s desk for his approval, which he would likely give. In that event, here are three things that could happen that would directly affect your real estate investing business:
In 2016, first-time home buyers accounted for fewer than one-third of all home purchases for the previous year. That is historically low; the long-term average for this number is closer to 40 percent. Homeownership also was nearly the lowest since the federal government began tracking it, with fewer than two-thirds of the population owning rather than renting. If the Dodd-Frank repeal does loosen loan standards, there is likely to be a burst of buying activity as would-be owners try to make purchases before interest rates rise. The Federal Reserve has said it will raise rates a total of three times in 2017.
Opponents of the repeal say that loosening lending standards will precipitate another housing crash. In 2007, the housing market melted down in large part because homeowners had borrowed far more money than they could afford to pay back over the long-term due to easy access to subprime loans that required little to no money down and that had what housing advocates call “abusive” terms that required large balloon payments a few years into the loan or that allowed interest rates on those loans to rise abruptly and sharply after an introductory period of low interest. Homeowners took on these loans believing, in many cases, that they would be able to refinance their homes on better terms thanks to fast appreciation, but often failed to successfully do so, resulting in tsunami of foreclosures that culminated in the housing crash.
Most experts agree that another housing crash in the near future due to a Dodd-Frank repeal is unlikely because subprime lending is not incentivized as it was prior to the housing crash and lenders are unlikely to repeat those poor decisions without those incentives in place. Furthermore, tight inventory on the lower, starter-home end of the spectrum is likely to keep demand for real estate both for rentals and ownership strong. Finally, a stabilizing economy and improving employment numbers will probably counteract, at least in the short term, any instability that might result from easier access to mortgage loans.
While the repeal of Dodd-Frank will likely send an immediate flurry of buyers into the market, over the long term it is likely that single-family rentals in particular will continue to be big business for real estate investors. With millennials comprising the largest number of would-be first-time buyers, the amount of existing debt that this population will bring to the table when attempting to buy will likely interfere with their ability to actually land a traditional mortgage. Furthermore, thanks in large part to astronomical student-loan debt, millennials as a population are less likely to find homeownership and the mortgage loan that goes with it as appealing as older generations. The nearly 70-percent homeownership numbers that the U.S. posted immediately prior to the housing crash are unlikely to be repeated even if Dodd-Frank is repealed in its entirety (unlikely in itself), and rentals will quite likely continue to be a strong, stable source of income for investors around the country.
Perhaps most important for real estate investors to remember as Dodd-Frank dominates the headlines is this: at present, not much has actually changed. President Trump signed an executive order on Dodd-Frank back in March of this year basically demanding a “review” of Dodd-Frank in preparation for the rollout of some type of legislation like the Financial CHOICE Act, but so far, little has happened to really change financial regulation. The CHOICE act has a great deal of support, but it is highly partisan in nature, which will make it difficult for the bill to pass the Senate without being adjusted in order to avoid a filibuster. The Senate announced last week that it would begin work on its own version of the CHOICE Act this summer, and it seems likely that the CHOICE Act will not survive a Senate vote unless the repeal is “toned down” fairly significantly.
For now, the best thing that real estate investors can do is keep their cool and monitor the situation. Dodd-Frank was not the end of the industry, as doomsday-sayers predicted when it passed, nor will its repeal (or the lack of a repeal) save or condemn the national housing market. As is always the case, the true strength of our national housing market and the real estate industry lies in the investors who are active in the sector and who work creatively within whatever confines the government and the market set to generate housing opportunities for the public and new opportunities for success for themselves and others in the process.
A revised version of the Financial CHOICE Act is in the works, according to House Financial Services Chairman and bill author Jeb Hensarling, R-Texas. Hensarling announced at the American Bankers Association Government Relations Summit on Wednesday that a revised version of the act would be released “soon,” but gave no further details on how soon.
Hensarling first introduced the Financial CHOICE act last summer, in response to the 2010 Dodd-Frank act. The president’s team has already indicated support of the Financial CHOICE Act, which, among other things, would modify aspects of Dodd-Frank. The CHOICE Act would help to reform the Consumer Financial Protection Bureau, which, according to author and investment banker Chris Whalen, “has been especially harmful to the mortgage industry and has caused the cost of servicing a mortgage to rise several fold since 2008.”
Hensarling is confident that his legislation will win a vote in the House, however, he fears that it will face a tougher road through the Senate. Republican Senate Banking Committee Chairman Mike Crapo, R-Idaho, faces the challenge of getting at least eight Democrats on boards for large portions of the legislation, according to Hensarling.
“Right now, I fear that a number of Democratic senators are intimidated by their base,” Hensarling said.
Hensarling has not given a specific timeline for when he will release the new timeline, although he did state that the presidential administration views bank deregulation efforts as a priority. It is difficult right now, however, to determine when Congress will be able to fit financial regulation into its schedule, as other acts, such as the Affordable Care Act and Senate confirmations currently dominate Congress.
Despite the opposition, Whalen notes that now is the right time for Financial CHOICE to pass. “There are a number of other issues that may catch the attention of the new President next year, but an amended version of the Financial CHOICE Act has the highest probability of success in 2017,” Whalen said. “Needless to say, the financial services industry including banks, insurers and nonbank financial institutions will be very supportive of passage of some form of the Financial CHOICE Act.”
Editors Comment-This revision, if passed will be a real positive for the consumer and the small note buyer/sellers who work in the seller financed area. It will revise the up to 3 limit per 12 month period looking forward or looking back to 24 seller finaced transactions. When changed it will booste the real estate market. Because of the way this act is written, many servicers are pulling out of several states due to potential liabilities.
As a footnote to the following article, I was on a plane to the IMN conference on 1/18/17. Much to my surprise one of the passengers was Congressman David Schweikert of Scottsdale. Mr. Schweikert sits on the House Financial Services Committee.
As soon as the seat belt sign was off, I jumped at the opportunity to ask the Congressman two brief questions relating to The Dodd-Frank revisions/repeal.
Question#1–will the CFPB go away
Answer –no way
Question #2 -will the 3 limit be revised to 24, meaning the # of seller financied transactions an indivdual can have in a 12 month period.
Answer – Absolutely. This will happen in late 2107.
Thank you Congressman Schweikert for all your help. You are a friend to the real estate community.
As the Trump presidency takes hold, the debate over Dodd-Frank is growing. President Donald Trump has promised to dismantle the banking reform act. Fed Chief Ja
net Yellen has promised to defend it. Congress has the power to change it. And, the battle has already begun.
The House just passed an amendment to the Dodd-Frank Act that could be the beginning of its unraveling. Although this bill isn’t expected to pass in the Senate during President Obama’s final days, it provides a glimpse of the fight ahead, under a Trump administration.
The amendment that passed would change the way that federal regulators determine how important a bank is to the stability of the nation’s financial system, and how much oversight they should get. Banks that are determined to be crucial, or “too big to fail,” are called “systemically important financial institutions” – or SIFIs.
The threshold for oversight has been an ongoing debate by those who say the regulations are unreasonably harsh on smaller banks. Even the act’s co-author Barney Frank says it should have been more lenient toward smaller banks.
The just-passed bill would change the current threshold for stricter oversight from $50 billion in assets to one that is determined on a case-by-case basis. The Financial Stability Oversight Council would be in charge of making that determination.
Hedge fund manager and former Goldman Sachs partner Steven Mnuchin confirmed to CNBC on Wednesday morning that President-elect Donald Trump has nominated him for the position of Secretary of the U.S. Department of the Treasury.
Trump’s choice of Mnuchin, 53, who served as the President-elect’s national finance chairman during his campaign, is considered controversial because Mnuchin has never worked in government and his roots in Wall Street would seem to conflict with Trump’s anti-financial industry sentiment during his campaign.
One area where he does agree with Trump, however, is the need for reduced regulation. Mnuchin laid out a number of his initiatives on CNBC’s Squawk Box, should the U.S. Senate confirm him as the 77th Treasury Secretary. One of those is to roll back the Dodd-Frank Wall Street Reform and Consumer Protection Act, which passed in 2010 and is considered by the Obama Administration to be one of its greatest achievements. In various speeches and interviews throughout his campaign and since his election, Trump has vowed to overhaul the controversial financial reform law.
“We (Mnuchin and Trump’s choice for head of the U.S. Department of Commerce, Wilbur Ross, also announced on Wednesday) have been in the business of regional banking, and we understand what it is to make loans,” Mnuchin told CNBC. “That’s the engine of growth to small- and medium-sized businesses. The number one problem with Dodd-Frank is it’s way too complicated and it cuts back lending. So we want to strip back parts of Dodd-Frank that prevent banks from lending, and that’ll be the number one priority on the regulatory side.”
Mnuchin told CNBC that the U.S. economy can sustain a growth level of between 3 and 4 percent. In fact, he called sustained economic growth “our most important priority.”
“It is absolutely critical for the country,” Mnuchin said. “We absolutely can have sustained growth at that level. To get there, our number one priority is tax reform. This will be the largest tax change since Reagan. We’ve talked about this during the campaign. Wilbur and I have worked very closely together on the campaign. We’re going to cut corporate taxes, which will bring huge amounts of jobs back to the United States. We’re going to get to 15 percent, and we’re going to bring a lot of cash back into the U.S.”
In an interview with Fox Business after the announcement of his nomination, Mnuchin said he believes that the controversial government conservatorship of Fannie Mae and Freddie Mac should end and that the private market should have more of a share in the mortgage market.
“We will make sure that when they are restructured, they are absolutely safe and don’t get taken over again. But we’ve got to get them out of government control,” Mnuchin said, according to Bloomberg.
“A resolution of the conservatorship of Fannie and Freddie appears likely with Mnuchin as Treasury secretary,” says Tim Rood, Chairman of The Collingwood Group. “His experiences at Dune Capital, particularly the IndyMac/OneWest purchase and turn around, will most certainly influence his decision-making calculus.”
Five Star Institute President and CEO Ed Delgado said of the nomination of Mnuchin for Treasury Secretary: “I anticipate that with this new appointment, Treasury will continue to promote the department’s mission by encouraging a strong economy and creating economic growth and stability. As the economy further recovers from the Great Recession it is imperative that the housing industry and Treasury work in hand and hand to ensure housing and economic prosperity.”
Mnuchin left Goldman Sachs in 2002 after 17 years with the global investment banking firm to become vice chairman of hedge fund ESL, and he later became CEO of another hedge fund, SFM Capital Management. In 2009, Mnuchin and a group of investors purchased the failed Pasadena-based IndyMac bank from the FDIC for $1.5 billion after the mortgage meltdown and renamed the bank OneWest. In the years immediately following the crisis, OneWest’s foreclosure practices generated considerable controversy, particularly in California.
Mnuchin’s hedge fund, Dune Capital Management, of which he currently serves as CEO, became involved in Hollywood motion pictures years ago, financing such box office hits as “X-Men” and “Avatar.”
“If he gets the post, Mnuchin will bring a lot of mortgage expertise to the Treasury Department,” says Rick Roque, President of Menlo. “He bought Indymac, renamed it OneWest and then sold that company to CIT Group in 2015. That kind of experience, in addition to his experience in sub-prime origination, retail origination, and correspondent channels will prove to be very valuable to the non-depository mortgage banking market.”
The Consumer Financial Protection Bureau is likely to be reigned in if not rendered impotent or even abolished under President Trump. He has said he would come “close to dismantling” it along with Dodd-Frank. That is good news for small business, consumers, the economy in general — and note investors.
The CFPB is the brainchild of super-liberal Massachusetts Sen. Elizabeth “Pocahontas” Warren, who never met a business she doesn’t want to regulate.
“At stake is the agency’s aggressive approach to regulating credit and prepaid cards, mortgages, payday and student loans, debt collection, credit reporting and other areas of consumer finance since opening for business in 2011.”
Never a stranger to controversy, the Consumer Financial Protection Bureau has been making headlines lately, perhaps less for its enforcement actions and rule-makings, and more for debates regarding its constitutionality.
As high profile court proceedings continue to unfold in the nation’s capital, there is a chance that changes may finally arrive to the CFPB’s structure and authority, suggests one recent editorial from The Wall Street Journal.
“In its short, unhappy life, the Consumer Financial Protection Bureau has compiled a record of abuse rivaling that of Washington’s most entrenched bureaucracies,” WSJ writes. “But there’s new reason to hope that this misanthropic creation of Dodd-Frank may not reach adulthood.”
The editorial points to the ongoing litigation between the CFPB and PHH Corporation (NYSE: PHH), a Mount Laurel, N.J.-based mortgage services provider, who the CFPB alleges broke the law when it referred customers to mortgage insurers that brought reinsurance from PHH.
The WSJ notes that the “unaccountable” CFPB overturned longstanding interpretations of law and specific guidance from the Department of Housing and Urban Development in its claims against PHH.
PHH is currently challenging the CFPB’s $109 million fine levied against it—roughly 18 times the amount determined by the Bureau’s own administrative-law judge.
For this “egregious” behavior, the Washington, D.C. Circuit Court of Appeals, as well as the WSJ, are wondering whether any of the CFPB’s actions are constitutional. More specifically, does this rogue agency have the authority to conduct such raids on American businesses?
“Judges on the D.C. Circuit asked because the consumer bureau is truly something new in Washington: a powerful independent regulatory agency run by a single federal official who cannot be removed from office at the will of the President,” WSJ writes.”The President can only fire the bureau’s director for cause.”
However, the editorial notes that the Constitution’s Article II gives the President authority to run the executive branch, and that includes the ability to fire top officers.
The CFPB’s single-director structure, along with the fact that the Bureau is not subject to Congressional appropriations, like other federal agencies, has long been a source of contention amongst agency opposition.
But while other federal agencies, such as the Social Security Administration, are also run by “one man exercising so much power,” according to the WSJ, the SSA “cannot tell business how to generate the cash to fund payroll taxes or tell beneficiaries how to spend them.”
“The consumer bureau, on the other hand, roams the financial landscape enforcing 18 statutes and bringing actions that can cost hundreds of millions of dollars,” WSJ writes. “It writes rules governing a wide swath of American business, has the power to define what is ‘unfair’ or ‘abusive’ in financial services, investigates companies and imposes penalties.”
Article II of the Constitution gives the President “not some of the executive power, but all of it,” noted Judge Brett Kavanaugh, one of the judges who is hearing the case between CFPB and PHH.
“For the sake of liberty and the integrity of the separation of powers, they should strike down this offense to constitutional governance,” WSJ writes
Later this year, the Dodd-Frank Wall Street Reform and Consumer Protection Act will reach its sixth anniversary, but if Congressional Republicans have their way, Dodd-Frank won’t reach anniversary number seven and many of the financial reforms enacted by the landmark law will be repealed or replaced.
According to the Republican arm of the House Financial Services Committee, Rep. Jeb Hensarling, R-TX, who chairs the House Financial Services Committee, is planning to announce a Republican plan to replace Dodd-Frank.
During the speech, Hensarling is expected to announce a Republican-crafted plan to replace Dodd-Frank with a “pro-growth, pro-consumer” alternative, that includes the potential significant regulatory relief for financial institutions, as well as a dramatic overhaul of the Consumer Financial Protection Bureau.
While specific details on the plan are sparse at this point, Hensarling did reveal some of what can be expected in a recent speech at the National Center for Policy Analysis.
In that speech, given earlier this month, Hensarling called Dodd-Frank a “a monument to the arrogance and hubris of man.”
According to Hensarling, the country is “suffering” from the “slowest, weakest, most tepid recovery” in the country’s history.
“Some would say a lot of this has to do with our inefficient tax code, and it does. But beyond the tax burden that entrepreneurs face, there is a larger burden known as the regulatory burden – the sheer weight, volume, complexity, and uncertainty of a needless avalanche of Washington regulations – much of which has come from Dodd-Frank,” Hensarling said earlier this month.
“So, hear me well,” Hensarling continued. “On behalf of all hardworking, struggling Americans, I will not rest – and my Republican colleagues on the House Financial Services Committee will not rest – until we toss Dodd-Frank onto the trash heap of history.”
In Hensarling’s speech, he railed against Dodd-Frank, arguing that the comprehensive financial reform legislation did more to harm the economy than help it in the wake of the financial crisis.
“Dodd-Frank stands as a monument to the arrogance and hubris of man in that its answer to incomprehensible complexity and government control is even more incomprehensible complexity and government control,” Hensarling said.
“It is a modern day Tower of Babel. 2,300 plus pages. 400 new regulations spawning tens of thousands of pages of red tape,” Hensarling continued. “And its foundation very much rests on a false premise: that somehow deregulation was the root cause of the crisis. But it was not deregulation. In fact, in the decade leading up to the financial crisis, regulatory restrictions in the financial sector actually increased. It was not deregulation but it was dumb regulation.”
According to Hensarling, the “dumbest” regulation of all was the affordable housing goals of Fannie Mae and Freddie Mac, which “incented, cajoled, and mandated financial institutions loan money to people to buy homes that they could not afford to keep.”
And now, instead of “promoting financial stability” as Dodd-Frank was designed to do, it has failed, Hensarling said.
“Now when they voted for it, supporters of Dodd-Frank said it would promote financial stability, end too big to fail, and lift the economy,” Hensarling said. “None of this has come to pass. Instead, five and a half years later, it has become evident that our society has become less stable, less prosperous, and most ominously, less free.”
In his speech, Hensarling spoke about several points of tangible proof that show that Dodd-Frank is a failure.
Among those is reduction in the number of banks that offer free checking and the tight credit restrictions of the Qualified Mortgage rule.
According to Hensarling, “roughly 20% of the people who qualified for a mortgage in 2010 will no longer be able to qualify due to (the QM rule’s) rigid debt-to-income ratio.”
And one of the worst aspects of Dodd-Frank, according to Hensarling, is the creation and rise of the CFPB, which Hensarling calls a “tyrant” comparable to a “Soviet Commissar,” due to its wide-reaching power.
“Dodd-Frank has turned the Orwellian-named Consumer Financial Protection Bureau, not to mention the Financial Stability Oversight Council, into tyrants,” Hensarling said.
“With respect to the CFPB, it is a case study in the overreach and pathologies of the unaccountable, administrative state run amok. At almost every opportunity, the Bureau abuses and exceeds its statutory authority, which is already immense,” Hensarling continued.
“The Bureau operates with such secrecy, unaccountability, and bureaucratic tyranny it would make a Soviet Commissar blush,” Hensarling added. “It acts as judge, jury, and executioner, all without accountability and all without due process. This should alarm every American, because as we become less governed by the rule of law and more governed by the whims of Washington regulators, fear, doubt, uncertainty, and pessimism are sown.”
According to Hensarling, the Republican plan to repeal and replace Dodd-Frank will undo much of the harm done by the law, and will be based on six principles, which are:
1. Economic growth must be restored through competitive, transparent, and innovative capital markets
2. Every American must have the opportunity to achieve financial independence
3. Consumers must not only be viciously protected from force, fraud, and deception, but also from the loss of economic liberty
4. Taxpayer bailouts of financial institutions must end, and no company can remain too big to fail
5. Systemic risk must be reduced through market discipline
6. Simplicity must replace complexity, because complexity can be gamed by the well-connected and abused by Washington bureaucrats
“Both Wall Street and Washington must be held accountable,” Hensarling said.
Hensarling did reveal one of the key tenets of the Republican plan, the potential for a significant reduction in a financial institution’s regulatory burden in exchange for the company keeping a substantial amount of capital on its books.
The aim of this portion of the plan is to allow “bankers” to grow the economy, free of regulatory overhang.
“The most important feature of our plan, the essential core of our plan, will be to provide vast regulatory relief from Washington micromanagement in exchange for banks who choose to meet high but simple capital requirements,” Hensarling said.
“It will be an election, and it will essentially be the functional equivalent of a Dodd-Frank off-ramp. If financial institutions elect to hold strong, Tier I capital, they will gain strong regulatory relief from both Dodd-Frank and Basel’s burdensome regulations and capital standards,” Hensarling continued.
“In a nutshell, if a bank chooses to have a fortress balance sheet that protects taxpayers and minimizes systemic risk, then bankers ought to be allowed to be bankers and grow our economy,” Hensarling said. “It is that simple. In addition, as I said in our principles, we will end taxpayer bailouts and repeal Titles I and II of Dodd-Frank.”
Hensarling said that another part of the Republican plan is significantly change the structure of the CFPB, by putting the agency on a Congressionally-controlled budget, and creating a bi-partisan commission to oversee the CFPB.
“Let us remember ultimately though that this is not a debate about deregulation or regulation. It is really a debate over the future of the economy, and the hopes and dreams of millions,” Hensarling said.
“On one side are those who believe ultimately in the Progressive vision of a ruling elite who ultimately can decide for the rest of us about our credit cards, our checking accounts, our mortgages, because they are smarter than us,” he continued.
“The rest of us still passionately believe that the true source of our prosperity is not to be found in Washington. It is to be found in freedom and free markets and free enterprise,” Hensarling concluded. “We believe that well-functioning, transparent, and efficient capital markets will provide a ladder of opportunity. When all Americas have greater opportunities, the economy will rise with them. So it’s a choice between two different futures and two different visions.”