Mortgage Choice Act (H.R.1153)
The House passed (280-131) H.R. 1153, the Mortgage Choice Act of 2017. This bill amends the Truth in Lending Act to specify that neither escrow charges for insurance nor affiliated title charges shall be considered "points and fees" for purposes of determining whether a mortgage is a "high-cost mortgage."
Mortgage Choice Act of 2017
Introduced by Representative Bill Huizenga (R-MI), the “Mortgage Choice Act of 2017” amends the Truth in Lending Act (TILA) by modifying the definition of “points and fees” for purposes of determining whether a mortgage can be a Qualified Mortgage. This bill excludes from the calculation of points and fees insurance and taxes held in escrow and fees paid to affiliated companies as a result of their participation in an affiliated business arrangement. This bill would direct the Bureau of Consumer Financial Protection (CFPB) to amend its regulations related to Qualified Mortgages to reflect the new exclusions.
The bill passed the House Financial Services Committee 46-13.
Huizenga Introduces Legislation To Help Low & Middle Income Families
Monetary Policy and Trade Subcommittee Chairman Bill Huizenga (MI-02) released the following statement after introducing The Mortgage Choice Act, bipartisan legislation to help low and middle income Americans gain access to a qualified mortgage:
“Hardworking families across the nation should not be denied access to a qualified mortgage because of technicalities that are largely out of their control. The goal of The Mortgage Choice Act of 2015 is to help low and middle income borrowers, as well as prospective first-time homeowners, realize a portion of the American Dream by owning their own home. This legislation is narrowly tailored to promote access to affordable mortgage credit without overturning the important consumer protections and sound underwriting requirements specified by Dodd-Frank's 'ability to repay' provision. I am glad to see strong support for this reform from both Democrats and Republicans.”
Summary
H.R. 1153 excludes insurance held in escrow and, under certain circumstances, fees paid to companies affiliated with the creditor from the costs that would be considered in calculating the three percent “points and fees” limitation for purposes of determine whether a mortgage can be considered a “Qualified Mortgage”. The legislation directs the Consumer Financial Protection Bureau (CFPB) to amend its regulations to reflect the new exclusions.
Background
Mortgage points, also known as discount points, are fees directly paid to the lender at closing in exchange for a reduced interest rate. Essentially, some interest is paid up front in exchange for a lower interest over the life of the loan. One point costs 1 percent of your mortgage, or $1,000 for every $100,000.
Under the CFPB’s “Ability-to-Repay and Qualified Mortgage” rule, creditors are required to make a “reasonable, good faith determination of a consumer’s ability to repay” dwelling mortgage. A legal safe harbor from liability was established for certain “Qualified Mortgage” (QM) and are not “higher-priced.” A QM loan has less risky features and meets strict Federal requirements.
A key requirement for a mortgage to be considered QM is if total “points and fees” do not exceed 3 percent of the total loan amount. Points and fees include finance charges, loan originator compensation, real-estate related fees, insurance premiums, and loan-level price adjustment fees. The CFPB’s mortgage rules allow for the exclusion of certain real estate-related fees, including fees for title insurance and appraisals,, if the third party is affiliated with the lender, but not if the third party is unaffiliated. As a result, many loans involving affiliated companies would exceed the 3 percent cap, and not qualify as QMs.
However, under current law and regulations, what constitutes a “fee” or a “point” varies depending on who is making the loan and what the consumer does to obtain the title insurance. If the consumer chooses a title insurance provider that is affiliated with the lender, the title insurance charges count, but if the insurance is purchased from an unaffiliated title agency, the title charges do not count. In addition, escrowed homeowners insurance premiums may count as “points and fees” due to ambiguous drafting in Dodd-Frank. As a result many loans, especially those for low- and moderate-income consumers, fail the qualified mortgage test.
Cost
The Congressional Budget Office (CBO) estimates that implementing the bill would increase direct spending by less than $500,000 for the CFPB to update its guidance.
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MINORITY VIEW
Democratic Whip Steny Hoyer (MD):
The Dodd-Frank Act established criteria for “qualified mortgages,” also known as the “ability-to-repay rule,” requiring that mortgage lenders make a reasonable and good faith determination, based on verified and documented evidence, that borrowers are able to pay back their loans. The qualified mortgage rule was a common sense response to abusive mortgage lending practices that encouraged home buyers to take on more mortgage debt than they could afford, a primary contributor to the 2008 financial crisis. Mortgage lenders that adhere to the qualified mortgage rule receive certain legal protections against claims that might be filed by borrowers.
The qualified mortgage rule that the Consumer Financial Protection Bureau adopted in 2014 stipulated several criteria that qualified mortgages must meeting, a limit on “points and fees," as defined by the Truth in Lending Act, associated with a mortgage. Under the rule, points and fees may not exceed 3% of the total amount borrowed.
H.R. 1153 proposes to modify the definition of “points and fees” to exclude fees paid to title service providers owned by or affiliated with creditors, as well as insurance paid at closing into escrow, from the qualified mortgage rule’s 3% cap on points and fees. By excluding certain fees from the 3% cap, H.R. 1153, if enacted, could result in mortgages that turn out to be beyond the means of borrowers to repay.
When the House considered this bill in April of 2015, the Obama Administration issued a SAP stating that the President’s senior advisors would recommend he veto this bill due to the weakening of consumer protections.
The Rule, which was adopted yesterday, provides for one hour of general debate equally divided and controlled by the Chair and Ranking Member of the Committee on Financial Services.
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