The Center for Responsible Lending (CRL)
has released a brief issues paper voicing objections to HR 1077, The Consumer
Mortgage Choice Act. The bill currently
sits in the House Financial Services Committee of which its sponsor
Representative Bill Huizenga (R-MI) is a member.
The bill amends the Truth in Lending Act (TILA) with respect to disclosures
of points and fees for so called "high cost" mortgage loans and has the
following key points
Excludes from the computation of such points and
fees: (1) the amount of any loan level price adjustment payment set by Fannie
Mae, Freddie Mac, FHA, or similar government entity, (2) any compensation paid
by a mortgage originator to an employee or creditor; and (3) any escrow for
future payment of insurance.
Modifies the inclusion in the computation of all
compensation paid to mortgage brokers and specifies instead all compensation
paid directly by a consumer to a mortgage originator, including a mortgage
originator that is also the creditor in a table-funded transaction.
Modifies the criteria for exclusion from the
computation certain reasonable charges elsewhere exempted from the computation even
though a creditor receives compensation, but only in so far as the creditor or
its affiliate retains the compensation as a result of their participation in an
affiliated business arrangement. Requires the charge to be: (1) a bona fide
third party charge not retained by the mortgage originator, creditor, or an
affiliate; or (2) a fee or premium for title examination, title insurance, or
Modifies the conditions under which federal
departments and agencies may exempt refinancings under a streamlined
refinancing from an income verification requirement that, at the time a
refinancing is consummated, the consumer has a reasonable ability to repay the
loan and all applicable taxes, insurance, and assessments. Repeals the
exception for bona fide third party charges not retained by the mortgage
originator, creditor, or an affiliate from the requirement that total points
and fees not exceed 3% of the total new loan amount. (Thus subjects such
charges to the same 3% ceiling.)
CRL says the new bill would weaken a key mortgage reform by allowing
loans with excessive fees to
improperly meet the Qualified
definition. Its issue paper, written by Ken Edwards,
points to the proposed legislation's exemption of fees like yield
from the 3 percent
points and fees limit for loans meeting the definition
of a Qualified Mortgage.
payments made to mortgage brokers through increasing a loan's
interest rate, are complicated transactions, Edwards says, and as a result,
do not understand if they are paying a
competitive price. He
quoted a 2010 Federal Reserve report which said "Yield spread premiums are complex and may
even to well-informed consumers...
The Board's consumer
testing indicated that
yield spread premiums are
ineffective. Consumers in these tests did not
yield spread premiums..."
new loopholes would lead to more
Creating a points and fees exception
and other fees will result in more borrower confusion and more
expensive loans. This would create new incentives for
the CRL paper concludes.
HR 1077 was introduced by Huizenga in
March. It has the support of the National
Association of Mortgage Brokers, the Mortgage Bankers Association and the National
Association of Federal Credit Unions. Over
two dozen groups, largely consumer organizations, are on record as opposing the
legislation including The NAACP, National Peoples Action, National Fair Housing
Alliance, and the Consumer Federation of America.