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House Committee approves Mortgage Choice Act

Bill offers clarity in fees, more choices under QM rule

(Note: Story updated at 1:36 p.m.)

The House Financial Services Committee marked and favorably reported the H.R. 3211, the Mortgage Choice Act.

It can now be referred to the House floor for consideration.

Introduced by U.S. Rep. Bill Huizenga, R-Mich., H.R. 3211 is a bipartisan piece of legislation that would amend and clarify the qualified mortgage definition in the Dodd-Frank Act thereby improving access to credit and qualified mortgages for low and moderate income borrowers while protecting consumers from bad loans. It would adjust the Truth in Lending Act definition of fees and points by exempting points and fees any affiliated title charges and escrow charges for taxes and insurance from the qualified mortgage cap on points and fees.

"The goal of H.R. 3211 is to help low and middle income borrowers as well as prospective first-time homeowners realize a portion of the American Dream: owning their own home," Huizenga said after the unanimous vote. "This legislation 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. I am glad to see this bipartisan effort garner unanimous support in committee and I am hopeful this legislation will see action before the entire House in a timely manner."

National Association of Federal Credit Unions vice president of legislative affairs Brad Thaler hailed the House Financial Services Committee mark-up and favorable reporting.

“We thank the committee for approving this bipartisan legislation which would ensure greater consumer choice in the mortgage market,” said Thaler. “Making these important exclusions from the cap on points and fees will go a long way toward ensuring that many affiliated loans attain qualified mortgage status and credit unions’ ability to keep providing them. We look forward to working with Chairman Hensarling, the bill's sponsors and members of the House to press for floor consideration of this important relief measure.”

The Mortgage Choice Act would make two adjustments to the Truth in Lending Act definition of fees and points to ensure greater consumer choice in mortgage and settlement services under the Ability to Repay/Qualified Mortgage rule.

The QM rule sets the standard for consumer mortgages by providing significant compliance certainty to loans that do not have risky features and meet strict federal requirements. A key requirement is that points and fees for a QM may not exceed 3% of the loan amount.

From the industry’s perspective, the problem arises from the fact that, under current law and rules, what constitutes a “fee” or a “point” towards the cap varies greatly depending upon who is making the loan and what arrangements are made by consumers to obtain 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.

Most housing financial and housing trade groups support the Mortgage Choice Act, including 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.

“H.R. 3211 is a bipartisan compromise of earlier legislation (H.R. 1077) that reduces discrimination against mortgage firms with affiliates in the calculation of fees and points in the Qualified Mortgage rule,” said Steve Brown, president of NAR. “The QM rule sets the standard for mortgages by providing significant compliance certainty to QM loans that do not have risky features and meet certain requirements.”

NAR says that the problem arises from the fact that under current law and rules, what constitutes a “fee” or a “point” varies greatly depending upon who is making the loan and what arrangements are made by consumers to obtain closing services.

“As a result of these definitions, many loan originators affiliated with other settlement service providers are not be able to make QM loans to a significant segment of otherwise qualified borrowers,” Brown said. “(This bill) endeavors to restore a competitive market among lenders by clarifying and rationalizing the definition of fees and points to reduce this discrimination.”

U.S. Rep. Maxine Waters, D-Calif., expressed reservation about the bill.

"Mr. Chairman, I’m concerned that while these bills are well-intentioned, they 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," Waters said.

The bill’s sponsors include Representatives Gregory Meeks, D-N.Y.; Spencer Bachus, R-Ala.; David Scott, D-Ga.; Ed Royce, R-Calif.; Mike Doyle, D-Penn.; Steve Stivers, R-Ohio; Gary Peters, D-Mich.; Patrick Murphy, D-Fla., and Betty McCollum, D-Minn.

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