Consumer Mortgage Choice Act Under Fire From CRL

The Center for Responsible Lending (CRL)rnhas released a brief issues paper voicing objections to HR 1077, The ConsumerrnMortgage Choice Act.  The bill currentlyrnsits in the House Financial Services Committee of which its sponsorrnRepresentative Bill Huizenga (R-MI) is a member.</p

The bill amends the Truth in Lending Act (TILA) with respect to disclosuresrnof points and fees for so called “high cost” mortgage loans and has thernfollowing key points</p<ul class="unIndentedList"<liExcludes from the computation of such points andrnfees: (1) the amount of any loan level price adjustment payment set by FanniernMae, Freddie Mac, FHA, or similar government entity, (2) any compensation paidrnby a mortgage originator to an employee or creditor; and (3) any escrow forrnfuture payment of insurance.</li<liModifies the inclusion in the computation of allrncompensation paid to mortgage brokers and specifies instead all compensationrnpaid directly by a consumer to a mortgage originator, including a mortgagernoriginator that is also the creditor in a table-funded transaction.</li<liModifies the criteria for exclusion from therncomputation certain reasonable charges elsewhere exempted from the computation evenrnthough a creditor receives compensation, but only in so far as the creditor orrnits affiliate retains the compensation as a result of their participation in anrnaffiliated business arrangement. Requires the charge to be: (1) a bona fidernthird party charge not retained by the mortgage originator, creditor, or anrnaffiliate; or (2) a fee or premium for title examination, title insurance, orrnsimilar purposes. </li<liModifies the conditions under which federalrndepartments and agencies may exempt refinancings under a streamlinedrnrefinancing from an income verification requirement that, at the time arnrefinancing is consummated, the consumer has a reasonable ability to repay thernloan and all applicable taxes, insurance, and assessments. Repeals thernexception for bona fide third party charges not retained by the mortgagernoriginator, creditor, or an affiliate from the requirement that total pointsrnand fees not exceed 3% of the total new loan amount. (Thus subjects suchrncharges to the same 3% ceiling.)</li</ul

CRL says the new bill would weaken a key mortgage reform by allowingrnloans with excessive fees tornimproperly meet the QualifiedrnMortgagerndefinition.   Its issue paper, written by Ken Edwards,rnpoints to the proposed legislation’s exemption of fees like yieldrnspreadrnpremiumsrnfrom the 3 percentrnpoints and fees limit for loans meeting the definitionrnof a Qualified Mortgage.  </p

Yieldrnspreadrnpremiums, whichrnarernpayments made to mortgage brokers through increasing a loan’srninterest rate, are complicated transactions, Edwards says, and as a result,rnborrowers oftenrndo not understand if they are paying arncompetitive price.   Hernquoted a 2010 Federal Reserve report which said “Yield spread premiums are complex and mayrnberncounter-intuitiverneven to well-informed consumers…rnThe Board’s consumerrntesting indicated thatrndisclosures aboutrnyield spread premiums arernineffective. Consumers in these tests did notrnunderstandrnyield spread premiums…”</p

“Thesernnew loopholes would lead to morernexpensive loansrnfor borrowers. rnCreating a points and fees exceptionrnforrnyield spreadrnpremiumsrnand other fees will result in more borrower confusion and morernexpensive loans. This would create new incentives forrnabusive lending,”rnthe CRL paper concludes.</p

HR 1077 was introduced by Huizenga inrnMarch.  It has the support of the NationalrnAssociation of Mortgage Brokers, the Mortgage Bankers Association and the NationalrnAssociation of Federal Credit Unions.  Overrntwo dozen groups, largely consumer organizations, are on record as opposing thernlegislation including The NAACP, National Peoples Action, National Fair HousingrnAlliance, and the Consumer Federation of America. </p<p

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