U.S. President Donald Trump signed an executive order recently that directs the Consumer Financial Protection Bureau (CFPB) to appropriately tailor mortgage rules to help enable smaller banks to facilitate more affordable lending.
The order calls for federal banking regulators to revise supervisory guidance to focus on prudent underwriting, rather than overly technical process-oriented approaches to lending. It also supports construction lending by community banks.
Specifically, the order directs the CFPB to modernize Home Mortgage Disclosure Act (HMDA) reporting requirements to reduce compliance burdens and protect borrower privacy. It also directs Federal banking regulators to engage in responsible, safe, and efficient reforms to capital and liquidity rules to remove undue burdens on lending.
In addition, it directs federal banking regulators to modernize appraisal regulations by expanding alternative valuation models, reducing unnecessary appraisal requirements for low-risk transactions, and setting clearer timelines for appraisals.
Also, it promotes digital mortgage modernization by expanding electronic signatures, e-notes, and remote online notarization, which is anticipated to reduce lending costs and home-buying timelines. Further, federal banking regulators are directed to consider whether to adopt new supervisory criteria that promote portfolio mortgage servicing as a core community banking function and otherwise take other actions that lower barriers to entry and costs of operation for community banks in the mortgage lending business.
Overall, the order seeks to reduce regulations and cut red tape that has caused community banks to reduce their participation in mortgage lending. It states that a wave of regulatory changes — driven largely by the Dodd-Frank Act and subsequent rulemaking — has increased the cost and complexity of accessing a mortgage. That, in turn, has caused community banks and smaller lenders to retreat from mortgage markets they once served.
Further, the order says that outdated appraisal rules and rigid supervisory expectations have slowed lending and increased costs, especially for low-risk loans and refinancings. It adds that these regulatory distortions have weakened the mortgage market, reduced lender competition that drives down rates, reduced the amount of available capital for creditworthy borrowers, and made home ownership less affordable.
Earlier this year, Trump signed an executive order to prevent large institutional investors from buying single-family homes that could otherwise be purchased by families.
The order has garnered the support of the Mortgage Bankers Association.
“MBA appreciates the Trump administration’s and Congress’ increased focus on solving our nation’s housing affordability challenges. A combination of administrative and legislative reforms is necessary to make housing more affordable for homeowners and renters,” MBA’s President and CEO Bob Broeksmit said.
MBA agrees with the Administration’s focus on addressing costly mortgage regulations that have increased costs and limited access to credit. It supports efforts to increase bank participation in mortgage lending and servicing. It said the goal should be to revise overly burdensome rules for lenders of all sizes and business models.
“MBA strongly supports efforts to reform appraisals, ease construction regulations, and encourage homebuilding to help address the structural challenges driving up housing costs,” Broeksmit said. “We are eager to work with federal agencies and industry stakeholders throughout the regulatory reform process to ensure these enhancements are effective, practical, and benefit all consumers and market participants.”