Obama Signs Wall Street Reform

ent Obama has signed the Dodd-Frank Wall Street Reform and Consumer Protection Act, H.R.4173, into law. The act, also known as FinReg, includes numerous provisions of great interest to the mortgage industry. Title X of the legislation establishes the creation of a Consumer Financial Protection Bureau (CFPB), an independent agency housed within the Federal Reserve that will have broad rulemaking authority related to lending practices. Congressional Oversight Panel Chairwoman Elizabeth Warren and Treasury Department Assistant Secretary for Financial Stability Michael Barr are reported to be among the top candidates to lead the bureau. The CFPB will assume the regulatory functions handled by federal regulators such as the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp. and the Federal Reserve. The bureau will have responsibility over key mortgage laws, including the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA). ‘This will be one-stop shopping for the financial industry,’ said Ken Markison, the Mortgage Bankers Association's associate vice president and regulatory counsel, at an event hosted by the American Legal and Financial Network this week in Washington, D.C.. ‘I think the good news about all this is [that] when you move RESPA and TILA together, for example, the differences – obvious differences – between the approaches of these disclosure forms, given at the same times essentially in the process, are likely to be resolved.’ The Treasury will be expected to announce the transfer date of these functions within 60 days of the law's enactment. FinReg, under Title IX (the Mortgage Reform and Anti-Predatory Lending Act), establishes a 5% ‘skin in the game’ benchmark for originators and securitizers of mortgage loans. Commercial mortgage-backed securities will be governed by other forms of risk retention, such as representations and warranties. Regulators will exempt ‘qualified mortgages’ from the 5% risk-retention provision. ‘What I think this will force quite clearlyâ�¦is underwriting to these standards, because the risks are simply too great, the costs too high, to go outside them,’ Markison commented. Title IX will also create new regulations for credit rating agencies. An office will be created within the Securities and Exchange Commission to provide oversight of the agencies. Under the act, investors will be able to sue agencies for knowingly or recklessly failing to properly investigate facts or conduct analyses. The act features limited preemption, whereby state attorneys general and state regulators will have rule enforcement authority. Title XIV provides loan origination standards that Markison called ‘a particular matter of concern.’ Originators will be assigned unique identifiers that will be attached to all loan documents. In an effort to prevent brokers from steering borrowers into unsafe loan products, the act prohibits yield-spread premiums. Other forms of compensation, however, will be permissible. Title XIV also requires originators to make a good-faith determination that a borrower has the ability to repay a


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