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From Banking and Finance Law Daily, December 30, 2015

Early days show little effect from Dodd-Frank regulations, GAO says

By Richard A. Roth, J.D.

While it remains too soon to judge the full effects of the mortgage lending and financial stability regulations required by the Dodd-Frank Act, there do not seem to be large effects on the availability of consumer credit or on bank funding costs, according to a Government Accountability Office study. However, the GAO also said that community banks and credit unions are reporting increases in compliance costs and burdens (GAO-16-169).

The GAO report added that the various federal financial regulators consulted with each other and coordinated their rule-making activities as required by Dodd-Frank. The report covered the adoption of 26 rules that took effect between July 23, 2014, and July 22, 2015.

Compliance burdens. Community banks, credit unions, and industry groups the GAO talked to reported increased compliance burdens. Some also said the new rules had begun to affect their business and lending activities. The regulatory agencies said they have been unable to quantify cost increases but are aware of and are trying to address the industry’s concerns.

The mortgage lending-related rules were specifically noted as imposing increased costs for staff training and systems testing. This also was true of the Truth in Lending-Real Estate Settlement Procedures integrated disclosure rule. The Consumer Financial Protection Bureau did anticipate this rule would carry with it one-time implementation costs, especially for new technology and systems.

The report also cited industry concerns over increased costs related to rules on escrow accounts, appraisals for higher-priced mortgages, mortgage servicing duties, and remittance transfers. The loss of the ability to rely on credit ratings was said to be making investment decisions more costly, and some financial institutions reported reduced revenue from debit card operations due to the interchange fee rule.

Mortgage lending. The groups interviewed by the GAO predicted that the ability-to-repay/qualified mortgage rules would result in a decrease in credit availability and lending activity. However, the regulatory agency data have not so far revealed a decline, the report said. In fact, mortgages have increased as a fraction of assets for banks of all sizes and for some smaller credit unions. The GAO noted that studies have reported only a moderate to minimal reduction in credit availability, but added that even the regulatory agencies say it is too soon to assess the full effects of the mortgage lending rules.

Financial institutions told the GAO that many institutions might decide to stop making mortgage loans other than for qualified mortgages. However, the report said that “the ATR/QM rule would have limited initial impacts on mortgage lending activities because most loans originated in recent years largely conformed with qualified mortgage criteria and because not all loans that qualify as qualified mortgages are subject to the same restrictions.”

Financial stability. The GAO report also attempted to analyze the effects of the Dodd-Frank rules on systemically important financial institutions and on investment activities. According to the agency, the analysis is difficult because many of the relevant rules are not yet in full effect. However, the GAO’s indicators showed that Dodd-Frank rules have improved bank SIFI safety and soundness without a corresponding increase in funding costs and have brought about more use of margin collateral in over-the-counter derivatives transactions.

MainStory: TopStory DoddFrankAct FinancialStability Mortgages

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