In June, the House of Representatives passed H.R. 3211, “The Mortgage Choice Act,” which addresses discrimination against affiliate businesses in the calculation of fees and points under the Qualified Mortgage (QM) safe harbor. H.R. 3211 and its Senate companion, S. 1577, are a bipartisan compromise that reduces discrimination against mortgage firms with affiliates in the calculation of fees and points in the Dodd-Frank Ability to Repay/Qualified Mortgage (QM) rule. The QM rule sets the standard for mortgages by providing significant compliance certainty to QM loans that do not have risky features and meet certain requirements. A key requirement is that points and fees for a QM may not exceed 3 percent of the loan amount. The problem is that under current law and rules, what constitutes a “fee” or a “point” varies greatly depending upon who is making the loan and what arrangements are made by consumers to obtain closing services. As a result of these definitions, many loan originators affiliated with other settlement service providers are not able to make QM loans to a significant segment of otherwise qualified borrowers.
For those of you with an interest, please take the time to thank the sponsors who did a spectacular job navigating the gridlock in Washington: Representatives Bill Huizenga (R-MI), Gregory Meeks (D-NY), Spencer Bachus (R-AL), David Scott (D-GA), Ed Royce (R-CA), Mike Doyle (D-PA), Steve Stivers (R-OH), Gary Peters (D-MI), Patrick Murphy (D-FL), and Betty McCollum (D-MN).
Now it is time for the final push in the Senate. The lead sponsors of S. 1577 are Senators Manchin (D-WV), Johanns (R-NE), Levin (D-MI), Kirk (R-IL), Stabenow (D-MI), Toomey (R-PA), Klobuchar (D-MN), Portman (R-OH) and Isakson (R-GA). An attempt to attach the bill to legislation in the Senate Banking Committee was unsuccessful. As we head into the fall, we’ll be working to find other avenues to enact this important legislation.
The discrimination in the calculation of fees and points is being felt by consumers who are seeing reduced choices and added hassles in their transactions. A spring NAR survey of affiliated mortgage lenders revealed almost half experienced problems due to the 3-percent cap, and in almost half those instances, consumers either were not able to complete the transaction or not able to complete the transaction with their preferred settlement services provider. Where services were outsourced and charges known to the lender, nearly half of loans (43.8 percent) reported higher fees as compared to the same (12.5 percent) or unknown (43.8 percent).
Worse than the data are the stories being told by REALTORS®. In one case, a buyer wound up paying $600 more a year for their homeowner’s insurance because they could not use the real estate affiliate. One real estate company is reporting that on deals where outside services are used, the additional costs are up to $500 more per transaction. Another company reports that borrowers were forced to use an outside title company simply because state law fixed the rates of title and it was impossible to adjust the rate to comply with the 3-percent cap.
Needless to say, these situations limiting choice are not benefitting consumers. That is why S. 1577 is called “The Mortgage Choice Act,” because it restores consumer options in choosing a mortgage provider. Now that the House has passed the legislation, it is critical for the Senate to act.
Ken Trepeta is the director of Real Estate Services for the National Association of REALTORS®.
This column is brought to you by the NAR Real Estate Services group.
For more information, visit www.realtor.org.
