The U.S. House of Representatives recently passed a bipartisan bill known as the Mortgage Choice Act of 2015. The bill essentially reforms two existing regulations – Dodd-Frank Wall Street Reform and Consumer Protection Act and the Truth in Lending Act (TILA). Will the proposed changes benefit the consumer? Let’s break it down.
The Mortgage Choice Act amends and clarifies the way points and fees are calculated under the qualified mortgage (QM) definition. It loosens a regulation within Dodd-Frank that caps lending points and fees at 3 percent of the loan.
As for TILA, the Mortgage Choice Act adjusts the definition of fees and points. The changes exempt points and fees on any affiliated title charges and escrow charges for taxes and insurance from the qualified mortgage cap. (Note: charges from unaffiliated services companies are already exempt under current regulations.)
The legislation is supported by various financial and housing trade groups, including the National Association of REALTORS®. Supporters contend that the existing fee cap is unrealistic for small loans and the proposed changes are a reasonable way to ease regulatory burdens on mortgage lending. Proponents are optimistic that this legislation will improve access to credit and qualified mortgages for low and moderate income borrowers while still protecting consumers from bad loans.
The following statement from National Association of REALTORS® President Chris Polychron provides perspective from the REALTOR® community.
“As they are currently written, the consumer protection rules unfairly prevent consumers from obtaining QM loans through certain mortgage brokers and affiliated lenders whose joint venture services are collectively counted against a 3 percent cap on mortgage fees and points, although individual services from large retail financial institutions are each capped separately. The Mortgage Choice Act redefines the cap so that affiliated and non-affiliated service providers are treated the same way under the rule while still protecting borrowers from unsafe loan products.”
Some contend that the Mortgage Choice Act would create a loop hole to allow high-cost loans to improperly meet the QM standard established by the Dodd-Frank rules. Critics further allege that changing the fee cap could lead to a monopoly in favor of large banks (namely those that own title companies). Opponents worry that the proposed amendments could lead to prohibitive compliance costs that stifle innovation, and put people and businesses in rural America at a disadvantage.
As the legislation moves to the Senate, it is unclear how the bill will be received. Can this legislation open up more borrowing opportunities for consumers while still protecting them? We’ll keep our eye on it.