In January, on the eve of President Donald Trump’s inauguration, we posted a blog that looked at the Dodd-Frank Act and its potential impact on the title insurance industry. The Dodd-Frank Act that was originally introduced under the Obama administration increased the level of regulation on the financial services industry, implementing stress tests to determine a bank’s ability to survive an economic downturn scenario. It also attempted to bring more transparency and accountability to the lending process, which, in turn, made it more difficult for borrowers to secure loans for real estate investments and, by extension, impacted the title industry. If the current administration succeeds in making changes to Dodd-Frank what will it mean for the real estate industry?
Changes on the horizon
The U.S. Treasury released its recommendations for regulatory reform in early June and that could spell big changes to existing rules under Dodd-Frank. It has been no secret that President Trump desires a partial dismantlement of the act, and a rollout of these recommendations could soon be seen.
Most directly, it may streamline localized financial engagements related to real estate. According to the regulatory reform recommendations, “the capital regime for community banks having total assets less than $10 billion should be simplified, which can be achieved by providing for an exemption from the U.S. Basel III risk-based capital regime and, if required, an exemption from Dodd-Frank’s Collins Amendment. This change could address the treatment of select asset classes that are integral to banking models, such as mortgage servicing assets and certain types of commercial real estate loans.”
This series of changes, aimed at local banks and credit unions, could bolster the ability of smaller institutions to lend – meaning more deals and more title insurance in hand from smaller, prolific creditors.
Another effort stipulated in the recommendations involves those stress tests we talked about earlier. Changes would effectively raise the asset threshold for banks that must take the tests from $10 billion to $50 billion.
The larger banks have a corner on real estate lending and are able to operate more effectively than their smaller counterparts under Dodd-Frank regulations. While lessened regulations stand to help boost the market for smaller banks and open the door to buyers that could not previously secure a loan, but those concerned fear changes will also lead to less secure lending.
Ultimately, real estate investors can expect to see a more simplified process, should changes to Dodd-Frank come through. At Landmark Title, we will be watching closely to stay apprised of changes coming down and prepare to educate and service our clients accordingly.