On June 9, the U.S. House of Representatives unanimously passed H.R. 3211, the Mortgage Choice Act. The bill amends the qualified mortgage (QM) definition in the Dodd Frank Act, designed to improve access to credit and qualified mortgages for low and moderate income borrowers while protecting consumers from bad loans.
The bill, sponsored by Rep. Bill Huizenga, R-Michigan, specifically clarifies the treatment of insurance and taxes held in escrow and removes affiliated title fees from the points and fees calculation under the Ability to Repay Rule.
Earlier this year, the Qualified Mortgage (QM)/Ability-to-Repay Rule as mandated by the Dodd-Frank Act went into effect. The QM rule is the primary means for mortgage lenders to satisfy their “ability to repay” requirements. Additionally, Dodd-Frank provides that a QM may not have points and fees in excess of 3 percent of the loan amount. As currently defined, “points and fees” include (among other charges): (i) fees paid to affiliated (but not unaffiliated) title companies, (ii) salaries paid to loan originators, (iii) amounts of insurance and taxes held in escrow, (iv) loan level price adjustments and (v) payments by lenders to correspondent banks, credit unions and mortgage brokers in wholesale transactions.
“As a result of this confusing and problematic definition, many affiliated loans, particularly those made to low- and moderate-income borrowers, would not qualify as QMs and would be unlikely to be made or would only be available at higher rates due to heightened liability risks,” Huizenga said in remarks on the House before the vote. “Consumers would lose the ability to take advantage of the convenience and market efficiencies offered by one-stop shopping.
“I, along with Rep. Gregory Meeks, introduced H.R. 3211, a strong, bipartisan bill that would modify and clarify the way ‘points and fees’ are calculated,” he continued. “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.”
The industry was quick to react to the vote.
“Mortgage Bankers Association (MBA) commends the House of Representatives for approving this bipartisan legislation, which excludes from the QM definition of points and fees all title charges, regardless of whether they are charged by an affiliated company, provided they are bona fide and reasonable,” said David Stevens, president and chief executive officer of MBA. “Proper implementation of the ability to repay and QM requirements is crucial to allowing credit-worthy consumers to purchase or refinance a home at affordable rates. MBA looks forward to continuing to work closely with lawmakers as the bill moves to the Senate for consideration.”