The U.S. House of Representatives on Monday unanimously approved the Consumer Mortgage Choice Act, which is engineered to improve access to credit and qualified mortgages for low- and moderate-income borrowers, while at the same time, protecting consumers from bad loans.
Rep. Bill Huizenga, R-Mich., along with Rep. Gregory Meeks, D-N.Y., introduced in the bipartisan bill in March 2013. It amends the Truth in Lending Act with respect to how points and fees are calculated and how that information is disclosed to consumers.
Basically, the bill relaxes the Consumer Financial Protection Bureau's (CFPB) new rules as they pertain to how mortgage fees are calculated. The mortgage industry has argued for years that the CFPB's rules pertaining to points and fees are nebulous and overly restrictive, in that what constitutes a ‘fee’ or a ‘point’ towards the cap varies greatly depending on which lender is making the loan, as well as what arrangements are made by borrowers to obtain title insurance.
As Rep. Huizenga explained during a speech on the House floor on Monday, as currently defined under the CFPB's rules, ‘points and fees’ include (among other charges) the following: Fees paid to affiliated (but not unaffiliated) title companies; salaries paid to loan originators; amounts of insurance and taxes held in escrow; loan level price adjustments; and payments by lenders to correspondent banks, credit unions and mortgage brokers in wholesale transactions.
‘As a result of this confusing and problematic definition, many affiliated loans, particularly those made to low- and moderate-income borrowers, would not qualify as QMs [qualified mortgages] and would be unlikely to be made or would only be available at higher rates due to heightened liability risks,’ he said. ‘Consumers would lose the ability to take advantage of the convenience and market efficiencies offered by one-stop shopping.’
Rep. Huizenga added that the bill ‘is narrowly focused to promote access to affordable mortgage credit without overturning the important consumer protections and sound underwriting required under Dodd-Frank's 'ability to repay' provisions.’
Specifically, the bill would ‘provide equal treatment for affiliated title fees compared to unaffiliated title fees’ and ‘clarify the treatment of insurance and taxes held in escrow.’
‘These common-sense changes will promote access to affordable mortgage credit for low- and moderate-income families and first-time homeowners by ensuring that safer, properly underwritten mortgages pass the QM test,’ Rep. Huizenga said.
Essentially, the bill relaxes how points and fees are calculated to the benefit of lenders, thus enabling them to provide more loans to low- and moderate-income borrowers and still have those loans qualify under the CFPB's QM rules.
While the bill has thus far received broad support from the industry – including from the Mortgage Bankers Association, the Mortgage Lenders Association, the Consumer Mortgage Coalition, the Credit Union National Association, the National Association of Federal Credit Unions, the National Association of Home Builders, the Real Estate Services Providers Council, the Realty Alliance and the National Association of Realtors – it has also received some criticism from House Democrats who say it relaxes key provisions of the Dodd-Frank Act designed to prevent lenders from making ‘risky’ loans.
During a hearing in May, Rep. Maxine Waters, D-Calif., expressed reservations about the bill, saying that while it might be well intentioned, it ‘could open up cracks that will be used to significantly undermine consumer protection in the mortgage market, while increasing the administrative burden on financial regulators, some of which are already cash-strapped.’
Still, most people in the industry are supportive of the bill's provisions. In a statement issued late Monday, David Stevens, president and CEO of the Mortgage Bankers Association (MBA), said the ‘MBA commends the House of Representatives for approving this bipartisan legislation, which excludes from the qualified mortgage definition of points and fees all title charges, regardless of whether they are charged by an affiliated company, provided they are bona fide and reasonable.
‘Proper implementation of the ability to repay and QM requirements is crucial to allowing creditworthy consumers to purchase or refinance a home at affordable rates,’ Stevens added. ‘The MBA looks forward to continuing to work closely with lawmakers as the bill moves to the Senate for consideration.’
Steve Brown, president of NAR, says the Act ‘importantly redefines a provision in the ability-to-repay rules that limits mortgage fees and points to three percent in order for home loans to be considered qualified mortgages.’Â
That current provision, he says, ‘unfairly prevents brokers and affiliated lenders from making QM loans because their joint venture services are collectively counted against the cap, while individual services from large retail financial institutions are each capped separately.
‘The Mortgage Choice Act treats affiliated and non-affiliated service providers the same way under the rule while still protecting borrowers from risky loan products,’ Brown adds. ‘Realtors will continue to advocate for this legislation to clarify the QM rules as it moves to the U.S. Senate.’