The Mortgage Choice Act
June 12 – Dodd-Frank detractors became hopeful Monday evening after the House of Representatives passed H.R. 3211, the Mortgage Choice Act of 2013.
The bill, a resurrection of H.R. 1077 known as the Consumer Mortgage Choice Act, intends to amend the Truth in Lending Act’s current definitions for ‘points and fees’ and clarify the treatment of insurance and taxes held in escrow. If passed, it would gut some of the stricter legislation enacted by the Consumer Finance Protection Bureau (CFPB) earlier this year. Its proponents argue that businesses affiliated with the lender, such as title companies, should become exempt from the 3% points and fees cap implemented by Dodd-Frank.
“I’m very concerned about the ability for access for everyone who is looking to grab a piece of the American dream” said former Realtor Rep. Bill Huizenga, who introduced the bill. “These common sense changes will promote access to affordable mortgage credit for low and moderate income families and first time homebuyers by ensuring that safer, properly underwritten mortgages pass the QM test.”
As a result of the current points and fees definition, proponents claim that consumers are unlikely to have the option of using an affiliated company if title charges exceed 3% of the loan amount. Loans made to particularly low- and moderate-income borrowers would only be available at higher rates due to heighted liability risks. Their inability to take advantage of affiliated companies, or having a one-stop-shop, is held to be anti-consumer and anti-competitive.
The Mortgage Choice Act’s passage has not gone without some controversy. Representatives from the Center for Responsible Lending (CRL) asserted that this bill “would upset the careful balance struck by the Consumer Financial Protection Bureau” and leave consumers “vulnerable to excessive fees”.
“These bills recreate incentives for lenders to steer families into high-risk, high-fee loans they do not understand and cannot afford,” said Congresswoman Maxine Waters in an editorial written last year. “The new bill… would remove indirect compensation from the cap and encourage the same predatory loan companies that dominated the subprime market back into our neighborhoods.”
Standing on the other side of the argument, National Association of Realtors© President Steve Brown made his position clear in a news release Tuesday: “The provision unfairly prevents brokers and affiliated lenders from making QM loans because their joint venture services are collectively accounted against the cap, while individual services from large retail financial institutions are capped separately… Realtors© will continue to advocate for this legislation to clarify the QM rules as it moves to the U.S. Senate.”
Brown is not alone. Although it has an estimated 39% chance of being enacted, the bill is also backed by many authoritative entities such as the National Association of Federal Credit Unions (NAFCU), Mortgage Bankers Association (MBA), American Bankers Association (ABA), Community Mortgage Lenders Association, and the Consumer Mortgage Coalition.
Supporters of the bill argue that these changes allow more safe mortgages to pass the qualified mortgage test. President and CEO of MBA David H Stevens said, “MBA commends the House of Representatives for approving this bipartisan legislation, which excludes from the Qualified Mortgage (QM) 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 credit-worthy consumers to purchase or refinance a home at affordable rates.”
In a letter delivered Monday afternoon, NAFCU vice president of legislature affairs Brad Thaler urged the House that, “These changes would… ensure that those with low and moderate means would continue to obtain their mortgages from their credit union at a reasonable price.”
But, isn’t this the kind of legislature that caused the housing bubble in the first place? Doesn’t this also put more power back into the hands of corporate giants? Maybe, but Huizenga claims it isn’t about making risky loans. In a Facebook comment posted Monday, Huizenga stated “This legislation provides a technical correction of regulatory overreach and does NOT put taxpayers on the hook.” It remains to be seen if the bill would actually jeopardize responsible lending practices.
At best, the Mortgage Choice Act is only tinkering around the edges of a much larger beast. The Dodd-Frank Act has clearly become some of the largest regulatory reform in American history and it’s leaders stand resolute in their vision. Despite it’s support and the tiring efforts of Huizenga, however, it may be a fair estimation to suggest that the bill will be lost on the Senate floor. As aggressive as it’s proponents appear to be, their opposites still hold the power. But, if anything can be learned from the Mortgage Choice Act, it is that Dodd-Frank is not impenetrable. The Mortgage Choice Act has proved that it is possible to poke small holes in an otherwise formidable battleship. And, if it’s supporters have any luck, it might actually work.
“I hope the Senate follows suit and quickly acts to allow consumers greater access to mortgage credit and more choices in credit providers” said Huizenga in a Facebook post Monday.
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