“The Consumer Mortgage Choice Act” (H.R. 4323), introduced by Representatives William Huizenga (R-MI), Ed Royce (R-CA), Lacy Clay (D-MO), and David Scott (D-GA), is bipartisan legislation that makes corrections to the calculation of fees and points under the Home Ownership Equity Protection Act (HOEPA) and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). This legislation is vitally important to real estate firms who have affiliates and to real estate professionals who believe consumers should have more choices in mortgage lenders—including the option of using one-stop shopping.
The “Ability to Repay” provisions of Dodd-Frank include, among other items, a provision that if a loan’s fees and points do not exceed 3 percent, the loan will be considered a “Qualified Mortgage” (QM). NAR believes that the QM will define the universe of readily available mortgages for a long time to come and non-QM mortgages will be rarely (if ever) made because of the extreme legal liability that attaches to a non-QM loan. The problem is that the calculation of fees and points under the 3 percent cap discriminates against real estate and mortgage firms with affiliates involved in the transaction. “The Consumer Mortgage Choice Act” corrects the discrimination and levels the playing field between affiliated and unaffiliated firms and also makes a technical correction that prevents the potential double-counting of compensation against the 3 percent cap.
The basic definition of fees and points covers what is often traditionally thought of in the industry as charges relating to originating the mortgage loan, such as origination and underwriting charges. However, when an affiliate is involved, additional items must also be included under the HOEPA definitions, like title charges and money that is held in escrow to pay homeowners insurance, and possibly even property taxes.
In the case of title charges, this industry is heavily regulated at the state level with 44 states requiring rates to be filed or set by the state so the differences among providers are not likely to be significant. With regard to escrow, those charges are ultimately paid to third parties or the state, and if there is an overcharge, it must be refunded under RESPA. In both cases, it makes no sense to discriminate against the affiliated lender by making them count these charges toward fees and points when an unaffiliated lender would not.
If these provisions are not corrected, 26 percent of the market or more could be affected. The ultimate effect would be that consumers would be denied the choice of using in-house services and there would be less competition in the lending and settlement services industry as well as likely reduced access to credit. The choice of affiliated services has achieved growing popularity over the years, and in the most recent Harris Interactive Survey on the topic (December 2010), consumer satisfaction levels were a full 10 points higher for those who used affiliates than for those who did not. Consumers reported that using affiliated services saved them money (78 percent), made the process more manageable and efficient (75 percent), prevented things from falling through the cracks (73 percent), and was more convenient (73 percent).
NAR has been working to fix this problem with the Consumer Financial Protection Bureau, but does not believe they understand the true impact this issue will have on lenders and consumers. As such, a legislative solution may be the only alternative.
If you believe affiliated businesses should not be discriminated against and that consumers should have the choice to use affiliated mortgage or title companies, then you should contact your Member of Congress and ask them to co-sponsor H.R. 4323, “The Consumer Mortgage Choice Act.” NAR has been working to secure co-sponsors and move this legislation forward in the House of Representatives. We are also working to secure similar legislation in the Senate. The rules governing the Qualified Mortgage are due out this summer and will likely be implemented next year. Therefore, time is of the essence.
This column is brought to you by the NAR Real Estate Services group.
Ken Trepeta is the director of Real Estate Services for the National Association of Realtors®.