Bill Introduced to Rectify 3% Inequities

Last week,  H.R. 685 "The Mortgage Choice Act" was introduced in the House of Representatives.  H.R. 685 is bipartisan legislation that will make two adjustments to the Truth in Lending Act's (TILA) definition of "points and fees" to ensure greater consumer choice in mortgage and settlement services under the Ability to Repay/Qualified Mortgage (QM) rule. An identical bill passed the House last year on the suspension calendar by voice vote (H.R. 3211).  SAMCAR, in conjunction with NAR, is pressing for companion legislation to be introduced in the Senate and is urging both houses to move quickly to end discrimination against mortgage companies affiliated with real estate firms.

A CLOSER LOOK: 3% Cap on Fees and Points Issue Summary

What is the fundamental issue?

The Dodd-Frank Ability to Repay/Qualified Mortgage (QM) discriminates against various business models including mortgage bankers, mortgage brokers, and affiliates.  Specifically, for a mortgage to be a QM and receive safe harbor protections, fees and points cannot exceed 3% of the loan amount.  The problem is that under the Consumer Financial Protection Bureau's (CFPB) rule, mortgage bankers, broker, and affiliated companies have to count many more items towards fees and points than large retail financial institutions. The CFPB needs legislation to change this because of the specificity of the Dodd-Frank legislative language.

I am a SAMCAR member. What does this mean for my business?

Real estate professionals and their clients may have fewer choices in where they can obtain a mortgage or other settlement services and what level of service they can rely on.  Some will not be able to obtain loans at all.

Policy Actions

SAMCAR, in concert with NAR, supports greater access to mortgage credit and consumer choice. The Dodd-Frank Qualified Mortgage definition of fees and points needs to be fixed in order to ensure continued access to a broad range of lending institutions and options that meet consumer needs. The current definition of fees and points creates an un-level playing field between different types of lenders. Other laws and rules already in effect prevent the apparent harms the current 3% rule is supposed to address.  It is not necessary to discriminate against mortgage companies and their affiliates in order to protect the consumers from such issues as steering.  They are protected via RESPA which makes kickbacks illegal and other rules such as the loan officer compensation rule which forbids compensation to be based on loan terms or conditions, removing any incentive to steer.

Opposition Arguments

Opponents of the NAR proposal believe consumers do not receive enough protection and need additional protections to control the prices they pay for title insurance, mortgages and other settlement services.

Legislative/Regulatory Status Outlook

The legislation from the 113th Congress (H.R. 3211) is expected to be reintroduced in the new Congress.  The language of H.R. 3211, "The Mortgage Choice Act," makes adjustments to the Truth in Lending Act's (TILA) definition of fees and points to ensure greater consumer choice in mortgage and settlement services under the Ability to Repay/Qualified Mortgage (QM) rule. S. 1577 was companion legislation in the Senate though the Senate did not act before the 113^th session of Congress expired.