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An update on the Dodd-Frank Act and the CFPB

Changes to the Dodd-Frank Act under the Trump administration could result in alterations to rules surrounding mortgages.
3/16/2017 12:01:17 PM

Since entering the White House, President Donald Trump has kept his campaign promises to roll back regulations, especially those concerning the financial sector. On Jan. 30, 2017, the president signed an executive order calling for two regulations to be eliminated for each new federal rule that is proposed by a government agency.

On top of that, President Trump has made good on his promise to "do a big number" on the Dodd-Frank Act. He signed another executive order Feb. 3, 2017, giving the U.S. Department of the Treasury the power to restructure major portions of the law, as well as the authority to ensure existing rules align with administration goals.

A response to the crisis of 2008

Designed by President Obama and his administration, the Dodd-Frank Act was responsible for significant changes in regulations regarding financial institutions and regulatory agencies. Signed into law in July 2010, the act came as a response to the crisis of 2008, which ?predominantly affected housing and ?financial sectors, among others. The goal of the legislation was to reduce the chances of a recurrence of this problem.

"Opponents to Dodd Frank see the act as reducing institutions' profit-making ability."

Proponents of Dodd-Frank believe it will safeguard consumers from experiencing many of the abuses that led to the crisis. In adding various regulations to limit risk, however, opponents to the legislation see the act as an attempt to reduce institutions' profit-making ability, according to The New York Times.

Creation of the CFPB

The Dodd-Frank Act created a number of regulatory organizations that monitor various aspects of the financial sector. In addition to the Financial Stability Oversight Council and Orderly Liquidation Authority, which oversees the strength and security of major firms whose missteps could have a negative impact on the economy, the Obama administration's legislation also established the Consumer Financial Protection Bureau.

The CFPB, originally proposed by Massachusetts Senator Elizabeth Warren, oversees consumer protection within the financial realm and regulates financial products, such as residential mortgages, payday loans and private student loans, according to USA Today.

Republican opposition

Since the CFPB's implementation, Republican lawmakers have attempted to eliminate the agency. While previous steps against this organization have been taken - the Repeal CFPB Act was introduced by Senator Ted Cruz last year - President Trump's executive order could carry out more dramatic changes. The first may be the ousting of CFPB head Richard Cordray, who can be removed by the president for any reason after a recent court ruling found the structure of the agency to be unconstitutional.

Citing regulatory burdens on banks as a limit to their competitiveness, White House National Economic Council Director Gary Cohn also stated that he and Secretary of the Treasury Steven Mnuchin want to overhaul both Fannie Mae and Freddie Mac, which provide a large majority of mortgages but remain under government conservatorship, according to The Wall Street Journal.

With looser regulations under the Trump administration, both the availability and rules surrounding conventional mortgages could change. To repeal and replace the Dodd-Frank Act, House Republicans will need 60 votes - an unlikely number. However, rewrites to the legislation are likely on the horizon, as are alterations to the structure of the CFPB and other agencies created under the Obama administration's response to the 2008 financial crisis. 

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