A speaker at the 2011 Mortgage Bankers Association Conference’s first general session walked onto the stage hefting a worn-out cardboard box with “Dodd-Frank Act” written in red letters on one side. He grabbed fistful after fistful of papers representing the thousands of regulations the bill has produced, and dropped them onto the stage, ultimately dumping out the entire contents of the box as the audience applauded.
The man was not a frustrated mortgage banker, but rather Representative Spencer Bachus (R-Ala.), Chairman of the House Financial Services Committee.
Although the piles of regulations that have accrued from the Dodd-Frank Act may stem from good intentions, they’ll most likely yield unintended consequences and serve to cramp the private market, said Bachus at the MBA conference, held this year in Chicago, Ill.
More than 3,700 new regulations have come from the bill, with another 4,257 in the pipeline, said Bachus, and 219 of those will have a net negative impact of $100 million or more on the economy, according to cost analysis.
But, in order to strengthen the American economy, Bachus said, we need to be very careful about passing regulations.
There’s too much spending, and not enough revenue, he said; “That’s $100 million for the economy if those regulations aren’t passed.”
And, while he acknowledged that they’re “well-meaning” in intention, he also pointed out that numbers of regulations being passed in Washington, D.C. are at a “record high.”
“There’s never been this many [regulations] limiting and restricting the private sector,” Bachus said in his presentation. “The only other time where the government was managing or micromanaging the economy this much was during the Great Depression.”
He mentioned former president Franklin D. Roosevelt’s New Deal, saying that the worst part of regulations are the unintended consequences.
The Agricultural Adjustment Agency was created as part of the New Deal, in an attempt to “help” farmers who were struggling with the low prices of agricultural commodities.
The agency passed regulation tinkering with supply-and-demand metrics that brought about plowing under 10 million acres of cotton, and killing six million piglets, in 1933.
By 1935, the US was importing 36 million bales cotton, and 2 million pounds ham and bacon, because of a shortage. In two years’ time, the US had gone from exporting to importing, and from being the largest cotton exporter to the largest importer.
“I don’t think I’ve ever seen a Federal program which didn’t have an unintended consequence,” Bachus told the audience. Then, in reference to the Dodd-Frank Act, he added, “We have to make sure that all these regulations don’t have all these unintended consequences.”
Government planning and control did not get the American economy to be the largest, he said, adding that the government needs to step out of the way and allow the private market to take over.
Earlier in the MBA conference’s first general session, newly-elected chairman Michael Young voiced similar concerns, saying that Fannie Mae and Freddie Mac had “too big of a government footprint,” taking up a majority of the mortgage market.
“That must be reduced,” said Young.
He also said the MBA believes the Dodd-Frank qualified residential mortgage (QRM) guidelines are too rigid, and don’t allow for mortgage lenders’ discretion to grant exemption for lower risk loans. The MBA has previously spoken out against the new ruling.
However, Raj Date, the special advisor to the Consumer Financial Protection Bureau, countered by saying that the Bureau believes in “smart regulation.”
This means regulation that is evidence-based, relying on research and data analysis; participatory, sharing exactly what they’re doing with the public and with industries; and precise, inviting feedback for areas which need immediate focus.
Written by Alyssa Gerace