The Mortgage Choice Act (H.R. 685) passed the House on April 14 with a 286-140 vote. Sponsored by Rep. Bill Huizenga, R-Mich., and co-sponsored by 37 other representatives, the bill’s purpose is to amend the Truth in Lending Act (TILA) to “improve upon definitions provided for points and fees in connection with a mortgage transaction.”
What the bill does is amend the definitions of points and fees under TILA and clarify that the amended definition applies to TILA’s definition of a high-cost mortgage and to the Qualified Mortgage (QM) rule’s ability-to-repay provisions.
Under the current definition, points and fees under TILA include “each of the charges listed in [15 U.S.C. 1605(e)] (except an escrow for future payment of taxes), unless – (i) the charge is reasonable; (ii) the creditor receives no direct or indirect compensation; and (iii) the charge is paid to a third party unaffiliated with the creditor.”
Under the bill’s amended definition of points and fees, the language above would instead read: “each of the charges listed in section 1605(e) of this title (except an escrow for future payment of taxes and insurance), unless- (i) the charge is reasonable; (ii) the creditor receives no direct or indirect compensation, except as retained by a creditor or its affiliate as a result of their participation in an affiliated business arrangement (as defined in section 2(7) of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2602(7)); and (iii) the charge is – (I) a bona fide third-party charge not retained by the mortgage originator, creditor, or an affiliate of the creditor or mortgage originator; or (II) a charge set forth in section 106(e)(1).
In other words, this amended definition creates an exemption for points and fees held in escrow for insurance payments and an exemption for points and fees on affiliated title charges from the QM rule’s cap on points and fees. It changes the no-creditor-compensation provision to exclude compensation for creditor-affiliate business arrangements.
The QM rule placed a 3 percent cap on upfront fees for mortgages. Critics of the House bill argued that the exemptions encourage lenders to limit competition by referring consumers to their affiliate businesses, because those fees would now not count among the 3 percent cap under the new amendments.
In her floor remarks during the House debate, Rep. Maxine Waters, D-Calif., the Ranking Member of the House Financial Services Committee, stated that “H.R. 685 would undermine the CFPB’s definition of affiliated services by removing title insurance fees charged by affiliates of the lender from the 3 percent cap. As a result, creditors will actually be encouraged to direct borrowers to expensive affiliates – codifying a system of kickbacks in our laws.”
In his floor remarks, House Financial Services Committee Chairman Rep. Jeb Hensarling, R-Texas, instead used an analogy stating that the QM rule’s inclusion of affiliates in the fee cap is similar to expecting someone to buy a hamburger from McDonald’s, but then be forced to go to Burger King to get their fries.
“[A]ll this bill is doing is leveling the playing field between those firms that would be affiliated and those that would not so consumers can have a few more choices and benefit from lower costs as they try to get their American dream,” Hensarling said.
Prior to the vote, the Community Mortgage Lenders of America Consumer Mortgage Coalition, Credit Union National Association, Leading Builders of America, the Mortgage Bankers Association, National Association of Federal Credit Unions, National Association of Home Builders, the National Association of Realtors, the Realty Alliance, and the Real Estate Services Providers Councils, Inc. sent a letter urging House members to support the bill.
“A key requirement of (QM) the rule is that a QM loan’s points and fees cannot exceed 3 percent of the loan amount. But under the current QM rule, what constitutes a ‘fee’ or a ‘point’ varies greatly depending on the consumer’s choice of a particular lender and title insurance provider,” the groups wrote, adding, “If a consumer chooses a title insurance provider affiliated with the lender, the consumer’s title insurance charges count towards the 3 percent cap, but if a consumer chooses an unaffiliated title insurance provider, the title charges do not count towards the 3 percent cap.
“In addition, escrowed homeowner’s insurance premiums may count as ‘points and fees’ because of a drafting ambiguity. Including title insurance charges or escrowed homeowner’s insurance premiums in the 3 percent cap can cause many loans — especially those sought by low- and moderate-income consumers — to fail the QM test. As a result, many otherwise-qualified borrowers cannot obtain a QM loan if they use the lender and title insurance providers of their choice. By clarifying the QM rule’s definition of points and fees, H.R. 685 will enhance competition in the mortgage and title insurance markets and will ensure that consumers have greater access to mortgage credit and will be able to choose the lenders and title providers best suited for their individual needs.”
On April 15, the bill was referred to the Senate Banking Committee.