Thursday, April 7, 2011

SB 712: The Financial Takeover Repeal Act

On April 1, while most of us originators were celebrating the (very) temporary stay granted to us by the U.S. Appellate Court to prevent implementation of the Fed Rule on loan originator compensation, a bill was being unveiled in the Senate which, if passed, could actually help us.  Senator Jim DeMint (R SC) chairman of the Senate Steering Committee, introduced S. 712, The Financial Takeover Repeal Act of 2011, to completely repeal the Dodd Frank Act.  Currently the bill has 24 co-sponsors, including Sen. Richard Shelby (R AL), Sen. Mitch McConnell (R KY), Senator Rand Paul (R -KY)  and both Senators from Texas.  To see the full list of sponsors go to

In his press announcement, Senator DeMint made the following argument for repeal of the bill, "We must repeal the Democrats' takeover of the financial markets that favors Wall Street corporations, over-regulates small businesses with massive new bureaucracy and hurts consumers. This financial takeover will strangle our economy and move jobs overseas unless it is repealed...The Dodd Frank financial takeover is producing hundreds of new regulations, forcing banks to charge consumers higher fees, and institutionalizing 'too big to fail' policies that favor Wall Street companies over small businesses."

Going to the Senator's website to read the press announcement is really worthwhile, because he provides links to the studies he cites to support his assertion that Dodd Frank needs to go. One of these is an article published by former Federal Reserve chair Alan Greenspan which was published in "Financial Times" on March 29, 2011.  Greenspan's comments are most interesting, "The financial system on which Dodd Frank is being imposed is far more complex than the lawmakers, and even most regulators, apparently contemplate. We will almost certainly end up with a number of regulatory inconsistencies whose consequences cannot be readily anticipated....In pressing forward, the regulators are being entrusted with forecasting and presumably preventing, all undesirable repercussions that might happen to a market when its regulatory conditions are importantly altered. No one has such skills."  I agree completely.  Dodd-Frank should have been subtitled, "The Law of Unintended Consequences," since it is basically a giant framework on which to hang numerous new laws and rules without having to go back to Congress.

DeMint quotes former Senator Chris Dodd, (D CT) whose name the bill bears, as saying about the Dodd Frank legislation, "No one will know until this is actually in place how it works."  That is very reminiscent of former Speaker of the House Nancy Pelosi's famous statement regarding health care, "We have to pass it to find out what is in it."  This is just one of many problems in Washington--legislators sponsor and write massive pieces of legislation they don't understand with far-reaching consequences they cannot appreciate and then force all of us to live with the results.

DeMint also cites a U.S. Chamber of Commerce study demonstrating that Dodd Frank regulations "could cut capital spending by over $5 billion and cost the U.S. over 100,000 jobs."

Jamie Dimon, CEO of JPMorgan Chase, is quoted as saying that Dodd Frank may "put the nails in the coffin" of the U.S. economy.  Recent studies indicate that excessive regulations on debit card fees may cause banks to stop issuing debit cards. Dimon likens the debit card fees restrictions to "basic price-fixing at its worst."

In what well may be the most interesting expert cited by DeMint, the outgoing Special Inspector General for TARP, Neil Barofsky, reported to Congress that the biggest banks had grown larger as a result of all of the financial reform and there is now more danger of having to engineer another bailout than when we started TARP.

And then, of course, there is the whole problem of the housing market and access to mortgage credit.  Surprisingly, this discussion is missing from DeMint's announcement.  (I say that not as a criticism but merely as an observation).  The housing market is extremely important to the economic recovery of the U.S., and the rules being implemented today are going to prevent a housing recovery in the near future and are ultimately going to prevent many responsible credit worthy Americans from having the opportunity to own a home of their own. 

Greenspan's article in "Financial Times" is followed by pages of vitriolic comments reviling Greenspan, the banking community and all financial services providers in general.  And I think this public perception problem is the reason that "The Financial Takeover Repeal Act" does not have a lot of widespread support.  Too many Americans see Dodd Frank as a necessary bill which protects the financial interests of the middle class.  They do not recognize that it creates a massive new bureaucracy which is crushing small businesses, gobbling up financial products, and cutting off many Americans' access to credit.

Making regular people understand that the credit crisis today, and especially the mortgage credit crisis, is not just a result of the recession but that it is a result of massive regulations which are squeezing the life out of mortgage lending has to be our job.  I realize that mortgages and mortgage lending are only one small piece of Dodd-Frank, but they are a critical piece affecting millions of Americans.  And no one is in a better position to tell the story of housing than we (the loan originators working in the housing markets.)

I know that many of us are still trying to figure out how to deal with the Fed Rule on loan originator compensation since the stay was lifted on Tuesday.  I have been seeing the various videos floating around from NAMB about future lawsuits.  The real truth of the matter is this--without repeal of Dodd Frank we have no chance of winning a lawsuit to change the Fed Rule because the basic provisions of the Fed Rule regarding compensation are also written into the new law.  And with the Consumer Financial Protection Bureau going into regulatory effect this July and qualified residential mortgages around the corner, our problems are only just beginning.  If we want to see anything improve, the underlying law has to be repealed.  Then, and only then, can we expect to win a lawsuit to make the Federal Reserve change its rules.

Neither of my two Senators supported the Repeal measure, nor will they.  I emailed both of them frequently when Dodd Frank was being debated last year and they both smugly assured me that the bill was necessary to prevent another financial crisis. But I plan to email Senator DeMint today and express my support, and I urge anyone who wants to continue to have a career in any aspect of financial services to do the same. If your Senators are more openminded than the two from New Mexico, where I make my home, I would recommend contacting them as well.  Only with a full repeal are we ever going to have any hope of earning a living, running our small businesses, and continuing to assist our fellow Americans in realizing their dreams of homeownership..

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