Dodd-Frank’s ability-to-repay rule strikes the market in January, bringing new standards for calculating points and fees on newly originated mortgages with it.
A massive lobbying effort is already underway to change the points and fees standard before it leads, they say, to tighter credit requirements for loans and fewer consumer options.
The ability-to-repay rule in its current form, calculates points and fees by including fees paid to affiliated title companies, salaries to loan-paid originators, insurance and taxes held in escrow, loan-level pricing adjustments and payments by lenders to correspondent banks, credit unions and mortgage brokers dealing in wholesale transactions, the National Association of Federal Credit Unions warns in a letter to Congress.
The end result, the trade group says, is a mortgage market where many affiliated loans will not qualify as qualified mortgages – and where the cost of lending rises exponentially or lending opportunities dry up altogether.
The party really impacted is the consumer, says Bill Killmer, a senior vice president for legislative and political affairs at the Mortgage Bankers Association. He has been following all of the pushback and Congressional attempts to change the points and fees standard under Dodd-Frank. But, it’s not just credit unions in the protest line.
"Lenders of all sizes – credit unions, banks and service providers in the real estate industry – have been pushing for a year and a half," Killmer says. "I think we have some momentum on the House side, and once you get something past the House, you can probably get something pushed in the Senate Chamber," he added.
And there’s a reason for all the pushback. NAFCU outlined the industry’s concerns in a letter addressed to House leadership.
"Non-QM loans would be less likely to be made or would only be available at higher rates due to heightened liability risks," NAFCU’s Vice President of Legislative Affairs Brad Thaler explained in a letter sent to Speaker of the House John Boehner (R-Ohio) and House Minority Leader Nancy Pelosi.
After surveying NAFCU member credit unions, Thaler concluded that nearly 72% of the respondents had decided not to make non-QM loans if the ‘ability-to-repay’ rule takes effect without major changes to the points and fees calculation.
Killmer says under the current construction a "lender would be reluctant to make low-value loans." He added, "They would not be made under the points and fees construction since they would not make the QM definition, or because of the heightened liability risk."
The legislative affairs expert says "there’s a lender impact in terms of how it would drive activity in loan originations," but ultimately it’s the consumer who will pay in the form of limited choices and more expensive options.
It’s for this reason, NAFCU and industry trade groups are lobbying House leaders to take up The Mortgage Choice Act of 2013, or H.R. 3211. NAFCU's leadership says the act would eliminate title charges from the ‘points and fees definition’ and exclude escrow charges that could push even low- to moderate-income borrowers over the points-and-fees threshold.
"These changes would greatly improve the definition of ‘points and fees’ used to determine whether a loan meets the QM test, and would ensure that those with low and moderate means would continue to be able to obtain their mortgages from their credit union at a reasonable price," Thaler concluded.