Editor’s note: On April 14, 2015, the U.S House of Representatives passed H.R. 685, “The Mortgage Choice Act” by a vote of 287-140.
In March, H.R. 685, the bipartisan Mortgage Choice Act, easily passed the House Financial Services Committee by a vote of 43-12. This legislation reduces discrimination against affiliate lenders under the 3-percent cap on fees and points in the Qualified Mortgage (QM) rule. Identical legislation, supported by a bipartisan group of six senators, passed the House twice in 2014, but did not see action in the Senate due to opposition from consumer advocacy organizations and their allies.
There are two kinds of opposition to the Mortgage Choice Act. First, there are those who simply do not want anything related to the Dodd-Frank Wall Street Reform and Consumer Protection Act changed, no matter what the merits. While some in this group acknowledge changes might be necessary, they fear such legislation would open the door to “gutting” Dodd-Frank. While there is always a danger that a limited piece of legislation could be expanded, there are ways of limiting this chance in the Senate.
The second type of opposition seems to be based on erroneous assumptions about what the current discrimination does and what ending it would lead to. It is assumed that applying the cap to affiliates results in lower title insurance charges, but NAR survey data does not show this to be the case. In many instances, it is reported that people actually pay more in settlement service charges when they are unable to use an affiliate because of this rule. In other cases—because of state regulations—people pay the same, but do not get the benefits of time and convenience by using in-house services.
Another argument often brought up is that affiliates benefit from “steering” by those involved in the transaction. First, affiliates must disclose their relationship with the lender and they are prohibited from “requiring” or “forcing” someone to use the affiliate under the Real Estate Settlements Procedures Act (RESPA). RESPA also prohibits the payment of referral fees for settlement services so a lender cannot pay the affiliate or anyone else, including real estate agents, to refer business.
The owners of affiliates are only allowed to retain a share of the profits proportionate to their investment and nothing more. So affiliates must compete for their business based on pricing and quality of services. Real estate agents, as independent contractors, act as gatekeepers themselves and only have an incentive to refer based on the quality and cost of service their clients receive. Finally, the Consumer Financial Protection Bureau (CFPB) now enforces RESPA and they have more power than HUD ever had to prosecute illegal referral arrangements, required use, and other violations of RESPA, which they have been doing.
For all these reasons, opponents of the Mortgage Choice Act should reconsider their concerns with the legislation as there are many safeguards in place to protect consumers. All the current rule is doing is preventing many low- and moderate-income borrowers from choosing the exact service providers they wish to use and potentially benefiting from one-stop shopping. How is that consumer friendly?
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®.
For more information, visit www.realtor.org.