Senate Passes Comprehensive Financial Regulatory Reform Bill

The U.S. Senate on March 14 passed legislation, the "Economic Growth, Regulatory Relief, and Consumer Protection Act" (S. 2155), that amends federal banking law and financial regulations. The legislation, which was sponsored by Senate Banking Committee Chair Mike Crapo (R-ID) and a bipartisan group of 19 other Senators, includes a number of changes to federal mortgage rules, allows HFAs participating in the Hardest Hit Fund (HHF) to use their funds for lead and asbestos removal, and permits large banks to count some of their tax-exempt housing bond investments as high-quality liquid assets (HQLAs) under federal bank liquidity standards.

S. 2155 contains several provisions designed to increase access to mortgage credit by loosening federal mortgage rules promulgated by the Consumer Financial Protection Bureau (CFPB) and other agencies. Mortgage loans originated and held in portfolio by banks or credit unions with less than $10 billion in assets would automatically be defined as "Qualified Mortgages," affording them legal protections under CFPB’s Ability-to-Repay rule. The bill also changes federal mortgage disclosure requirements to make it easier for borrowers to purchase manufactured homes and for appraisers to donate their services to Habitat for Humanity and other nonprofits. It waives federal appraisal requirements for certain lower cost homes in rural areas if the originator is unable to find a certified appraiser after a good faith search.

In addition, the bill:

  • directs CFPB to adopt consumer protection standards for Property Assessed Clean Energy loans (PACE loans);
  • removes the three-day advanced period during which lenders must provide borrowers with TILA-RESPA Integrated Mortgage Disclosures (TRID) for instances in which lenders offer borrowers a second credit offer with a lower annual interest rate;
  • expresses the sense of Congress that CFPB should provide better guidance on complying with TRID; and
  • exempts smaller banks from certain obligations under the Home Mortgage Disclosure Act (HMDA).

The bill allows participating HFAs to use HHF funding to support lead and asbestos removal from homes. Through HHF, 19 state HFAs administer federal funding to support foreclosure prevention and neighborhood stabilization. This program is set to expire at the end of 2020. Many HFAs have already committed their remaining HHF funds and are beginning to wind down their programs.

S. 2155 also amends federal bank liquidity standards put in place in October 2014 to allow large banks to count investments in certain municipal bonds, including tax-exempt private activity Housing Bonds, towards their minimum liquidity coverage ratio (LCR). The rule does not currently allow banks to use any municipal bond investments they hold towards meeting their LCR. S. 2155 would require that all investment-grade municipal bonds that are "liquid and readily marketable" be classified as level 2b High-Quality Liquid Assets (HQLAs). This means that banks could count such municipal bonds towards their LCR, but only at discounted value to be determined by federal regulators. In addition, banks cannot use level 2 assets to account for more than 40 percent of their HQLAs. Regulators would have three months to incorporate these changes into the current regulations.

The bill would restore the Protecting Tenants at Foreclosure Act, which requires landlords taking over rental properties that have been foreclosed upon to give tenants at least 90 days to find new housing before vacating the property. This legislation, which was first enacted in 2009 in the wake of the housing crisis, expired at the end of 2014. HUD’s Family Self-Sufficiency program would also be made permanent.

The legislation also includes a number of changes to other financial regulations. It would require credit bureaus to take additional steps to protect consumers’ credit (with additional protections for veterans). In addition, the bill increases the asset threshold above which banks must adhere to enhanced prudential standards from $50 billion to $250 billion, though the Federal Reserve would have the authority to reapply such standards to banks with assets between $100 billion and $250 billion if it deems such action critical to protecting financial markets.

S. 2155 passed the Senate by a vote of 67-31, with all Republicans present and 17 Democrats voting in favor (two Senators did not vote). Supporters, including Crapo and Republican leaders, argued that the bill would increase the flow of credit for consumers and businesses by reducing unnecessary regulations on small and midsize banks. Opponents, including Banking Committee Ranking Member Sherrod Brown (D-OH) and Democratic Senate leaders, said they favored regulatory relief for small banks, but that the bill goes too far and would weaken consumer protections and hinder regulators’ ability to prevent future market shutdowns.

The bill will now be sent to the House of Representatives. House Financial Services Committee Chair Jeb Hensarling (R-TX) has said that he will not advance the bill out of Committee until he can negotiate further changes with the Senate.

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