Last week, the House of Representatives passed HR 1153, the Mortgage Choice Act. The Act, sponsored by Representatives Bill Huizenga (R-MI), Steve Stivers (R-OH), Mike Doyle (D-PA) and David Joyce (R-OH), passed with a small amount of bi-partisan support and was strongly supported by the NAR. The Act amends Dodd-Frank and is intended to encourage competition between smaller mortgage lenders and large financial institutions. If ultimately passed as is by the Senate and signed by the President, the Mortgage Choice Act will in deed open up new choices for home buyers looking for financing. However, Congress will have not only stripped away another level of consumer protection, it will have missed an opportunity to strengthen existing consumer protection.
The Act would change definitions applicable to the Qualified Mortgage Rule under Dodd-Frank allowing mortgage brokers and title companies affiliated with real estate brokers to compete with large institutions. Under the Qualified Mortgage Rule, fees and points associated with a loan can not exceed 3% of the loan amount. Under current law, “Affiliated Businesses” must count more fees toward the cap, including fees paid to affiliated title companies (like title premium) and insurance companies, as well as monies held in escrow. The Act changes this differing treatment allowing more competition.
The Democratic Whip report prior to the vote last week noted that the exclusion of these fees, if enacted, “could result in mortgages that turn out to be beyond the means of the borrower to repay.” However, the report failed to mention the distinction between Affiliated Businesses which the Act addressed, and larger financial institutions, which are not required to include these fees in calculating the 3% threshold. Herein lies the missed opportunity. While the Democrats make a good point, most home buyers are still saddled with these fees and costs, which are generally paid to unaffiliated businesses and therefore, not calculated in determining whether the borrower can afford the loan.
If either side had offered an amendment or alternate legislation to require all 3rd party costs be included in making the 3% determination, small lenders and Affiliated Businesses would be on equal footing with large institutions, which was the basis of NAR’s argument in support of the Act AND consumer protection would increase at no additional cost to the government. But this did not happen. As a result, the Mortgage Choice Act is a failed opportunity.