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Will the Rollback of Dodd-Frank Help the Real Estate Sector?

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Economic Growth, Regulatory Relief, and Consumer Protection Act

In a continued effort to deregulate the economy, President Donald Trump signed the Economic Growth, Regulatory Relief, and Consumer Protection Act on March 24.

This new act provides some tweaks to the Dodd-Frank Act, which was enacted in 2010 in response to the 2008 financial crisis. This new legislation rolls back some of the restrictions imposed on small and medium-sized banks (XLF), which could loosen the requirements for banks when they are providing mortgages.

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Specifics of the new legislation

The new legislation is skewed toward helping community banks, which would benefit from the reduced capital requirements and regulatory costs. The bill would lift the definition of “systemically important financial institutions” from $50 billion to $100 billion with immediate effect, and the limit would eventually be increased to $250 billion. This change is likely to have an impact on the real estate (VNQ) sector, as it decreases the underwriting requirement for smaller banks serving small communities.

The chair of the National Association of Home Builders, Randy Noel, said in a statement that the new legislation would support a stronger, more robust recovery of the housing (XHB) and mortgage (MBB) markets.

Impact on the real estate market

Though the new law does not overthrow the Dodd-Frank regulations, it loosens credit standards, especially in a rising interest rate environment. Capital availability could increase in the real estate and REIT (IYR) sectors, which could marginally benefit them going forward. In the next part of this series, we’ll analyze how rising interest rates could affect REITs.

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