The U.S. House of Representatives passed a bipartisan bill Tuesday that would make important changes to the way points and fees are calculated under the qualified mortgage (QM) definition in the Dodd-Frank Act.
The QM rule is the primary means for mortgage lenders to satisfy their “ability to repay” requirements. Dodd-Frank provides that a QM may not have points and fees in excess of 3 percent of the loan amount. Under Dodd-Frank’s current definition, points and fees may include fees paid to lender-affiliated title companies, but not those that are unaffiliated with lenders.
Some lenders have said that including affiliated title fees in the 3 percent cap makes it difficult to issue small loans that are compliant with the regulations. As a result, some lenders are reportedly directing borrowers to nonaffiliated title companies in an effort to skirt the cap and avoid lawsuits.
The Mortgage Choice Act, or H.R. 685, seeks to provide equal treatment for affiliated title fees compared to unaffiliated title fees, as well as to clarify the treatment of insurance and taxes held in escrow.
In sponsoring the legislation, Rep. Bill Huizenga, R-Mich., said, “Many affiliated loans, particularly those made to low- and moderate-income borrowers, would not qualify as QMs and would be unlikely to be made or would only be available at higher rates due to heightened liability risks. Consumers would lose the ability to take advantage of the convenience and market efficiencies offered by one-stop shopping.”
The bill passed the House by 286-140 and now goes to the Senate, but its future is uncertain. National Association of Realtors President Chris Polychron, who is also an executive broker with 1st Choice Realty in Hot Springs, Arkansas, said the bill will ease regulatory burdens on mortgage lending and improve consumer access to mortgage credit.
“As they are currently written, the consumer protection rules unfairly prevent consumers from obtaining QM loans through certain mortgage brokers and affiliated lenders whose joint venture services are collectively counted against a 3 percent cap on mortgage fees and points, although individual services from large retail financial institutions are each capped separately. The Mortgage Choice Act redefines the cap so that affiliated and nonaffiliated service providers are treated the same way under the rule, while still protecting borrowers from unsafe loan products,” Polychron said in a statement on the bill’s passage in the House.
NAR is joined by many other trade groups that support the bill, including the Mortgage Bankers Association, the National Association of Home Builders and the Real Estate Services Providers Council Inc.
Title industry trade group American Land Title Association (ALTA) has not taken a position on the legislation, as its membership is comprised of both affiliated and unaffiliated title companies. However, the group said on its website that it believes Senate Democrats like Elizabeth Warren, D-Mass., who was instrumental in Dodd-Frank’s passage in 2010, are likely to oppose the legislation.
ALTA also pointed out that the White House has issued an administrative policy statement saying it will veto any points-and-fees legislation because it “would weaken key consumer protections and provisions” of Dodd-Frank.
“If that were to happen, ALTA believes there are probably not enough votes in Congress to override a White House veto,” the group said.
Other groups are lobbying for the bill’s rejection. Julia Gordon, senior director of housing and consumer finance at the Center for American Progress, said in a statement that the bill will “turn back the clock to the height of the housing crisis, when predatory lending was the norm.”
“These bills would do serious harm to the mortgage market by opening the door to the type of high-cost and unsustainable lending that caused the foreclosure crisis — without doing anything to increase access to high-quality mortgage credit. Congress should work to increase access to credit in ways that benefit both consumers and lenders,” Gordon stated.