Alternate Dimensions of Dodd-Frank

Wednesday, January 30, 2013

It is hard to believe, but the appraising world may have just been inadvertently turned upside down once again due to President Barack Obama's 2012 recess appointments. President Obama is certainly not the first or only president to make use of recess appointments, both President George W. Bush and President Bill Clinton made great use of recess appointments and bypassed the Senate much more frequently than President Obama has. The practice of recess appointments has in fact been repeated from previous administrations, both Republican and Democrat, dating back nearly one hundred years. To understand where we are today, let's look back just a few years ago.

In 2011, it was strongly believed that President Barack Obama would nominate Elizabeth Warren to become the director of the Consumer Financial Bureau (CFPB). Senate Republicans opposed Warren and did not allow Congress to adjourn, preventing President Obama from making a recess appointment. The possibility that President Obama could make a recess appointment without an actual recess was discussed and debated, but the idea never came to fruition.  Realizing she would not receive the votes needed for Senate confirmation, Warren withdraws her name for consideration. In a strange twist of fate, Warren was later elected to the U.S. Senate on November 6, 2012.

During a Senate recess in July 2011, President Obama selected Richard Cordray (an undefeated five time "Jeopardy!" champion and former Ohio Attorney General) as director of the Consumer Financial Protection Bureau. After demanding for months that the bureau's power must be reduced to prevent overreach, the Senate Republicans vow to block any nominee until the CFPB's powers were scaled down. True to their word, on December 8, 2011, Senate Republicans blocked the confirmation of Cordray by filibuster. Senate Democrats rallied to the cause but received only 53 of the 60 votes necessary to end the Republican filibuster. In response, on January 4, 2012, President Obama installed Cordray as director of the CFPB with a recess appointment. Senate Republicans responded quickly by charging that President Obama ignored the Senate's "advise and consent" role by filling the vacancies without an actual recess taking place.

Fast forward to 2013, with a monumental deadline looming, the Consumer Financial Protection Bureau issued a final rule on January 10, 2013 pertaining to lenders' obligations to assess borrowers' ability to repay mortgage loans and reduced lender liability for qualified mortgages, as required by Dodd-Frank. If a qualified mortgage rule was not decided by January 2013, lenders would have likely faced greater liability risks. By reducing lenders' liability risk, home loans and home ownership should increase as a result.

With the issuance of a final rule, a potential crisis was averted and many believed that further clarification would be forthcoming. Soon afterwards, on January 18, 2013, another final rule was published regarding higher-risk mortgages which the CFPB was also heavily involved in deciding.

But this all turned upside down on Friday when the U.S. Court of Appeals for the District of Columbia ruled that President Obama violated the Constitution by bypassing Senate confirmation for three National Labor Relations Board (NLRB) nominees (Noel Canning v. National Labor Relations Board). The court found that the NLRB lacked the three members necessary to function legitimately. Since the NLRB lacked the necessary members to make a ruling, the U.S. Court of Appeals found that the NLRB did not have the authority to rule against Noel Canning, a Pepsi-Cola bottling company. This finding will likely lead to closer scrutiny of all rulings during this time and may lead to each issue being re-decided. This might possibly lead to the overturning of a decision that affects everyone in the appraisal industry.

A Supreme Court challenge looms on the horizon as the invalidation of twelve months of NLRB decisions hang in the balance. If upheld, this ruling would greatly reduce the ability of the executive branch to make recess appointments and cast doubt over other appointments, such as Cordray.

Where does it all end?  Nick Timiraos has some shocking answers in his article for the Wall Street Journal, How the NLRB Ruling Could Scramble Mortgage Markets.

"So does this mean banks may not have to follow the qualified mortgage rule issued by the CFPB? Not so fast. Here's where things get really messy: the Dodd-Frank Act, which gave the CFPB's director the authority to flesh out the "qualified mortgage" definition, also provides an alternate definition that was to take effect on Jan. 21 if the CFPB hadn't exercised its authority to issue its own rule. So if the CFPB's 804-page rule isn't valid, then the alternate definition spelled out in the Dodd-Frank law could kick in.

Until courts clarify the validity of Mr. Cordray's appointment—and the rules that the CFPB just issued—banks face the prospect of having two different "qualified mortgage" rules: the 804-pager issued on Jan. 10 that takes effect next year (and which banks generally liked), and the alternate definition spelled out in the Dodd-Frank Act, which was to take effect on Jan. 21 of this year (and which would be much stricter for lenders)."

What would happen in an alternate dimension where the recess appointments never went through and Dodd-Frank never existed? How would it affect the appraisal industry as a whole? How do you think it affects you directly? Would you prefer to live in a world without Dodd-Frank?  Hopefully we will all receive the answers to the questions surrounding this issue in the near future and not in some alternate dimension.

Comments

I used to call myself a republican but I cannot handle the mindless obstruction and reprecussions anymore.  They lost to a smarter half black man- get over it.

So tired of an administration that keeps blaming the previous administration.  Obama needs to take responsibility for his anti-bussiness policies that have lead to a stagnent economy.

 Yes and PLEASE do something Mr President to get the job market going, the american people want to work and prosper.

Without that mindless obstruction we would soon lose the Republic

Another bad law that affects real people.

Maybe if the federal government just stayed out of it we could see a recovery.

Pepsi Cola....Supreme Court...Are you on Drugs???

Article seems biased to me. Who cares who did what? point is someone got called out on an illegal appointment, and then lost in court. Appt shouldn't have been made unless it was legit if it needed to be made to begin with. Now we have to deal with the fallout. Next time do it right, and maybe, just maybe, everything will go through like it is supposed to. This is just another example of taking "short-cuts," which is what got us all into this big mess to begin with.

With default rates at near 10% for many new loans, standards should be tightened.  The word is out that lenders don't care about risk, because the taxpayer foots the bill.  It's about time that the citizens who are allowed to engage banks, at least have worthy credit.  Up the fico requirements.  Up the downpayment requirements.  Stop the free ride because all these concessions to easier access to lending is what stops people from saving and being responsible.  Here is a concept, people need 20% down so they have skin in the game as well.  Perhaps if the issues relate to risk, charges like brokerage and realty fees should be moved to hard costs.  Sounds like a logical solution to an unbiased person.  Stop lending as much and there won't be as much risk to the taxpayers.  A home mortgage note should be for the mortgage, and nothing else.

Did you know Frank-Dodd doesn't apply to mortgages which use Federal Grant Money (CDBG/HOME)? 

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