[House Report 115-1024]
[From the U.S. Government Publishing Office]
115th Congress } { Report
HOUSE OF REPRESENTATIVES
2d Session } { 115-1024
======================================================================
MORTGAGE FAIRNESS ACT OF 2017
_______
November 14, 2018.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed
_______
Mr. Hensarling, from the Committee on Financial Services, submitted the
following
R E P O R T
together with
MINORITY VIEWS
[To accompany H.R. 2570]
[Including cost estimate of the Congressional Budget Office]
The Committee on Financial Services, to whom was referred
the bill (H.R. 2570) to amend the Truth in Lending Act to
clarify that the points and fees in connection with a mortgage
loan do not include certain compensation amounts already taken
into account in setting the interest rate on such loan, and for
other purposes, having considered the same, report favorably
thereon without amendment and recommend that the bill do pass.
Purpose and Summary
Introduced by Representative Bill Posey on May 19, 2017,
H.R. 2570, the ``Mortgage Fairness Act'' amends the Truth in
Lending Act to revise the definition of ``points and fees''
under a high-cost mortgage.
Background and Need for Legislation
On January 10, 2013, the Bureau of Consumer Financial
Protection (BCFP) issued a final rule to implement sections
1411 and 1412 as well as section 1414 of the Dodd-Frank Wall
Street Reform and Consumer Financial Protection Act of 2010
[P.L. 111-203], which limits prepayment penalties. The final
rule, also known as the ``QM'' Rule provides lenders with a
safe harbor for loans that satisfy the definition of a
``Qualified Mortgage'' and are not ``higher-priced.'' A
mortgage will be considered a Qualified Mortgage if it: (1) has
regular periodic payments that are substantially equal, except
for the payment changes on an adjustable rate mortgage or a
step-rate loan; (2) does not permit negative amortization; (3)
does not have a balloon payment; (4) does not exceed 30 years;
and (5) does not have total points and fees exceeding 3 percent
of the total loan amount.
Additionally, when underwriting a mortgage, a lender must:
(1) take into account mortgage-related obligations using the
maximum interest rate that may apply during the first five
years and periodic payments of principal and interest that will
be repaid; (2) consider and verify the consumer's current or
reasonably expected income or assets, other than the value of
the dwelling, and the consumer's current debt obligations,
alimony and child support; and (3) determine that the
consumer's debt-to-income ratio does not exceed 43 percent, as
calculated using Federal Housing Administration (FHA)
guidelines. The requirements in the ability-to-repay rule went
into effect on January 10, 2014.
The final QM Rule sets limits on points and fees for
Qualified Mortgages. It provides that a loan cannot be treated
as a Qualified Mortgage unless its total points and fees do not
exceed the certain limits and all dollar and loan amounts are
indexed for inflation.
The QM Rule stipulates that the following costs, known at
or before consummation, are included in the points and fees
cap:
All items included in the finance charge, with the
following exceptions:
Interest;
The time-price differential;
Federal or state government-sponsored mortgage
insurance premiums;
Private mortgage insurance;
Bona fide third-party charges not retained by the
lender, loan originator or an affiliate of either; and
Bona fide discount points.
Direct or indirect loan originator compensation,
including compensation paid by the consumer to mortgage brokers
and compensation paid by the lender to mortgage brokers and
retail loan officers. Salaries are excluded.
Real estate-related fees, including fees for title
examination, abstract of a title, title insurance, property
survey, document preparation, notaries, credit reports,
appraisals, inspections, flood hazard determinations, and non-
tax related amounts paid into escrow. Any of these charges may
be excluded from the points and fees calculation if they are
reasonable, if the lender receives no direct or indirect
compensation in connection with the charge, or if the charge is
not paid to an affiliate of the lender.
Premiums for credit insurance; credit property
insurance; other life, accident, health or loss-of-income
insurance where the lender is beneficiary; or debt cancellation
or suspension coverage payments.
Maximum prepayment penalty.
Prepayment penalty paid in a refinance.
Fees charged to consumers to recover the costs of
loan-level price adjustments (LLPAs) imposed by secondary
market purchasers of loans, including the GSEs.
Unfortunately, these methods double-count the brokerage fee
and generate a distorted picture of the overall cost of the
loan. The brokerage fee may be ``set as a percentage of the
loan amount (1 to 2.5 percent is customary), and is paid either
by the borrower or the lender. Brokers are required to disclose
their fees upfront, and they are not permitted to earn any more
than the disclosed amount . . . . If due from the borrower, it
could either be rolled into the loan amount or paid upfront by
check.''\1\ In other words, mortgage brokers may be compensated
in a lump sum or in the form of a higher interest rate on the
loan. In the latter case, the broker's origination fees are
reflected in the higher interest rate on the loan. However, the
points-and-fees calculation includes a line item for indirect
loan origination compensation, even if it is already priced
into the interest rate. In effect, the QM rule double-counts
the mortgage brokerage fee.
---------------------------------------------------------------------------
\1\Lisa Prevost, Choosing Between Mortgage Broker and Bank, N.Y.
Times, November 29, 2013, http://www.nytimes.com/2013/12/01/realestate/
choosing-between-mortgage-broker-and-bank.html.
---------------------------------------------------------------------------
The BCFP acknowledged this issue when it promulgated a rule
amending Regulation Z, which implements the Truth in Lending
Act (TILA). In its official interpretation of the rule, the
BCFP noted that it was:
``particularly concerned about situations in which
the creditor pays compensation to a mortgage broker or
its own loan originator employees because there is no
simple way to determine whether the compensation is
paid from money the creditor collected from up-front
charges to the consumer (which would already be counted
against the points and fees thresholds) or from the
interest rate on the loan (which would not be counted
toward the thresholds).''\2\
---------------------------------------------------------------------------
\2\ 78 Fed. Reg,. 35430, June 12, 2013. https://
www.federalregister.gov/d/2013-13173/p-9.
However, the BCFP ultimately decided not to address the
problem in full. Instead, the ``final rule retains an
`additive' approach for calculating loan originator
compensation paid by a creditor to a loan originator other than
an employee of creditor.''\3\
---------------------------------------------------------------------------
\3\ Id.
---------------------------------------------------------------------------
As a result, many loans that would not otherwise be
considered ``high cost'' exceed the 3 percent cap. The
consequences are significant. Lenders are less likely to offer
``high cost'' mortgages, or may make them available at higher
rates due to heightened liability risks.
While QM loans are given safe harbor against legal
liability under the Ability to Repay rules, ``high cost''
mortgages receive only a rebuttable presumption of compliance.
As the Congressional Research Service (CRS) has written:
``[w]hen a lender originates a mortgage that receives
QM status, it is presumed to have complied with the ATR
requirement, which consequently reduces the lender's
potential legal liability of its residential mortgage
lending activities. . . .The definition of a QM,
therefore, is important to a lender seeking to minimize
its legal risk of its residential mortgage lending
activities, specifically its compliance with the
statutory ATR requirement.''\4\
---------------------------------------------------------------------------
\4\Sean M. Hoskins, An Analysis of Portfolio Lending and Qualified
Mortgages, CRS, January 21, 2016, https://fas.org/sgp/crs/misc/
R44350.pdf (emphasis in original).
This legislation would resolve the issues related to
double-counting as points and fees, any compensation already
priced into the interest rate, while also codify the BCFP's
current practice of avoiding double-counting mortgage lender
compensation to their own mortgage origination employees.
Correcting the definitional error, H.R. 2570, will help to
better serve consumers and serve as another step to restore
healthy market competition that has been absent following the
enactment of the Dodd-Frank Act.
Hearings
The Subcommittee on Financial Institutions, held a hearing
examining matters relating to H.R. 2570 on December 7, 2017.
Committee Consideration
The Committee on Financial Services met in open session on
July 24, 2018 and ordered H.R. 2570 to be reported favorably to
the House without amendment by a recorded vote of 34 yeas to 22
nays (recorded vote no. FC-199), a quorum being present.
Committee Votes
Clause 3(b) of rule XIII of the Rules of the House of
Representatives requires the Committee to list the record votes
on the motion to report legislation and amendments thereto. The
sole recorded vote was on a motion by Chairman Hensarling to
report the bill favorably to the House without amendment. The
motion was agreed to by a recorded vote of 34 yeas to 22 nays
(Record vote no. FC-199), a quorum being present.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Committee Oversight Findings
Pursuant to clause 3(c)(1) of rule XIII of the Rules of the
House of Representatives, the findings and recommendations of
the Committee based on oversight activities under clause
2(b)(1) of rule X of the Rules of the House of Representatives,
are incorporated in the descriptive portions of this report.
Performance Goals and Objectives
Pursuant to clause 3(c)(4) of rule XIII of the Rules of the
House of Representatives, the Committee states that H.R. 2570
will resolve the issues related to double-counting as points
and fees, any compensation already priced into the interest
rate, while also codify the BCFP's current practice of avoiding
double-counting mortgage lender compensation to their own
mortgage origination employees, by correcting a definitional
error.
New Budget Authority, Entitlement Authority, and Tax Expenditures
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee adopts as its
own the estimate of new budget authority, entitlement
authority, or tax expenditures or revenues contained in the
cost estimate prepared by the Director of the Congressional
Budget Office pursuant to section 402 of the Congressional
Budget Act of 1974.
Congressional Budget Office Estimates
Pursuant to clause 3(c)(3) of rule XIII of the Rules of the
House of Representatives, the following is the cost estimate
provided by the Congressional Budget Office pursuant to section
402 of the Congressional Budget Act of 1974:
U.S. Congress,
Congressional Budget Office,
Washington, DC, September 11, 2018.
Hon. Jeb Hensarling,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 2570, the Mortgage
Fairness Act of 2017.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Stephen
Rabent.
Sincerely,
Keith Hall,
Director.
Enclosure.
H.R. 2570--Mortgage Fairness Act of 2017
Under current law, a ``qualified mortgage'' is a type of
loan that prohibits certain terms and features and offers
additional legal protections to lenders who issue them. One of
those features is that some costs that are incidental to the
loan and that are paid by the borrower--for example, title
insurance fees, guarantee fees, and service charges--cannot
exceed 3 percent of the total loan amount. Lenders offering
``high-cost mortgages'' (home mortgages with interest rates and
fees that exceed certain thresholds) must make additional
disclosures to borrowers and must comply with restrictions on
the terms of those loans.
H.R. 2570 would change what costs are included in the
points and fees calculation used to determine if a loan is a
qualified mortgage or a high-cost mortgage. The bill would
exclude compensation paid by a consumer or creditor to an
individual who is employed by or has a contract with the
mortgage originator. The bill also would exclude compensation
that was accounted for in setting the mortgage's interest rate
but for which the consumer was not separately charged.
Using information from the Consumer Financial Protection
Bureau, CBO estimates that enacting H.R. 2570 would increase
direct spending by less than $500,000 for the agency to issue a
rule to implement the changes to the points and fees
calculation.
Because enacting H.R. 2570 would affect direct spending,
pay-as-you-go procedures apply. Enacting the bill would not
affect revenues.
CBO estimates that enacting H.R. 2570 would not increase
net direct spending or on-budget deficits in any of the four
consecutive 10-year periods beginning in 2029.
H.R. 2570 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act.
The CBO staff contact for this estimate is Stephen Rabent.
The estimate was reviewed by H. Samuel Papenfuss, Deputy
Assistant Director for Budget Analysis.
Federal Mandates Statement
This information is provided in accordance with section 423
of the Unfunded Mandates Reform Act of 1995.
The Committee has determined that the bill does not contain
Federal mandates on the private sector. The Committee has
determined that the bill does not impose a Federal
intergovernmental mandate on State, local, or tribal
governments.
Advisory Committee Statement
No advisory committees within the meaning of section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.
Applicability to Legislative Branch
The Committee finds that the legislation does not relate to
the terms and conditions of employment or access to public
services or accommodations within the meaning of the section
102(b)(3) of the Congressional Accountability Act.
Earmark Identification
With respect to clause 9 of rule XXI of the Rules of the
House of Representatives, the Committee has carefully reviewed
the provisions of the bill and states that the provisions of
the bill do not contain any congressional earmarks, limited tax
benefits, or limited tariff benefits within the meaning of the
rule.
Duplication of Federal Programs
In compliance with clause 3(c)(5) of rule XIII of the Rules
of the House of Representatives, the Committee states that no
provision of the bill establishes or reauthorizes: (1) a
program of the Federal Government known to be duplicative of
another Federal program; (2) a program included in any report
from the Government Accountability Office to Congress pursuant
to section 21 of Public Law 111-139; or (3) a program related
to a program identified in the most recent Catalog of Federal
Domestic Assistance, published pursuant to the Federal Program
Information Act (Pub. L. No. 95-220, as amended by Pub. L. No.
98-169).
Disclosure of Directed Rulemaking
Pursuant to section 3(i) of H. Res. 5, (115th Congress),
the following statement is made concerning directed rule
makings: The Committee estimates that the bill requires no
directed rule makings within the meaning of such section.
Section-by-Section Analysis of the Legislation
Section 1. Short title
This section cites H.R. 2570 as the ``Mortgage Fairness Act
of 2017''.
Section 2. Points and fees
This section amends Section 103 of the Truth in Lending Act
(15 U.S.C. 1602) by correcting existing definitional errors of
what constitutes ``points and fees'' for a high cost mortgage.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, and existing law in which no
change is proposed is shown in roman):
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, and existing law in which no
change is proposed is shown in roman):
SECTION 103 OF THE TRUTH IN LENDING ACT
* * * * * * *
Sec. 103. Definitions and rules of construction
(a) The definitions and rules of construction set forth in
this section are applicable for the purposes of this title.
(b) Bureau.--The term ``Bureau'' means the Bureau of Consumer
Financial Protection.
(c) The term ``Bureau'' refers to the Bureau of Governors of
the Federal Reserve System.
(d) The term ``organization'' means a corporation, government
or governmental subdivision or agency, trust, estate,
partnership, cooperative, or association.
(e) The term ``person'' means a natural person or an
organization.
(f) The term ``credit'' means the right granted by a creditor
to a debtor to defer payment of debt or to incur debt and defer
its payment.
(g) The term ``creditor'' refers only to a person who both
(1) regularly extends, whether in connection with loans, sales
of property or services, or otherwise, consumer credit which is
payable by agreement in more than four installments or for
which the payment of a finance charge is or may be required,
and (2) is the person to whom the debt arising from the
consumer credit transaction is initially payable on the face of
the evidence of indebtedness or, if there is no such evidence
of indebtedness, by agreement. Notwithstanding the preceding
sentence, in the case of an open-end credit plan involving a
credit card, the card issuer and any person who honors the
credit card and offers a discount which is a finance charge are
creditors. For the purpose of the requirements imposed under
chapter 4 and sections 127(a)(5), 127(a)(6), 127(a)(7),
127(b)(1), 127(b)(2), 127(b)(3), 127(b)(8), and 127(b)(10) of
chapter 2 of this title, the term ``creditor'' shall also
include card issuers whether or not the amount due is payable
by agreement in more than four installments or the payment of a
finance charge is or may be required, and the Bureau shall, by
regulation, apply these requirements to such card issuers, to
the extent appropriate, even though the requirements are by
their terms applicable only to creditors offering open-end
credit plans. Any person who originates 2 or more mortgages
referred to in subsection (aa) in any 12-month period or any
person who originates 1 or more such mortgages through a
mortgage broker shall be considered to be a creditor for
purposes of this title. The term ``creditor'' includes a
private educational lender (as that term is defined in section
140) for purposes of this title.
(h) The term ``credit sale'' refers to any sale in which the
seller is a creditor. The term includes any contract in the
form of a bailment or lease if the bailee or lessee contracts
to pay as compensation for use a sum substantially equivalent
to or in excess of the aggregate value of the property and
services involved and it is agreed that the bailee or lessee
will become, or for no other or a nominal consideration has the
option to become, the owner of the property upon full
compliance with his obligations under the contract.
(i) The adjective ``consumer'', used with reference to a
credit transaction, characterizes the transaction as one in
which the party to whom credit is offered or extended is a
natural person, and the money, property, or services which are
the subject of the transaction are primarily for personal,
family, or household purposes.
(j) The terms ``open end credit plan'' and ``open end
consumer credit plan'' mean a plan under which the creditor
reasonably contemplates repeated transactions, which prescribes
the terms of such transactions, and which provides for a
finance charge which may be computed from time to time on the
outstanding unpaid balance. A credit plan or open end consumer
credit plan which is an open end credit plan or open end
consumer credit plan within the meaning of the preceding
sentence is an open end credit plan or open end consumer credit
plan even if credit information is verified from time to time.
(k) The term ``adequate notice'', as used in section 133,
means a printed notice to a cardholder which sets forth the
pertinent facts clearly and conspicuously so that a person
against whom it is to operate could reasonably be expected to
have noticed it and understood its meaning. Such notice may be
given to a cardholder by printing the notice on any credit
card, or on each periodic statement of account, issued to the
cardholder, or by any other means reasonably assuring the
receipt thereof by the cardholder.
(l) The term ``credit card'' means any card, plate, coupon
book or other credit device existing for the purpose of
obtaining money, property, labor, or services on credit.
(m) The term ``accepted credit card'' means any credit card
which the cardholder has requested and received or has signed
or has used, or authorized another to use, for the purpose of
obtaining money, property, labor, or services on credit.
(n) The term ``cardholder'' means any person to whom a credit
card is issued or any person who has agreed with the card
issuer to pay obligations arising from the issuance of a credit
card to another person.
(o) The term ``card issuer'' means any person who issues a
credit card, or the agent of such person with respect to such
card.
(p) The term ``unauthorized use'', as used in section 133,
means a use of a credit card by a person other than the
cardholder who does not have actual, implied, or apparent
authority for such use and from which the cardholder receives
no benefit.
(q) The term ``discount'' as used in section 167 means a
reduction made from the regular price. The term ``discount'' as
used in section 167 shall not mean a surcharge.
(r) The term ``surcharge'' as used in section 103 and section
167 means any means of increasing the regular price to a
cardholder which is not imposed upon customers paying by cash,
check, or similar means.
(s) The term ``State'' refers to any State, the Commonwealth
of Puerto Rico, the District of Columbia, and any territory or
possession of the United States.
(t) The term ``agricultural purposes'' includes the
production, harvest, exhibition, marketing, transportation,
processing, or manufacture of agricultural products by a
natural person who cultivates, plants, propagates, or nurtures
those agricultural products, including but not limited to the
acquisition of farmland, real property with a farm residence,
and personal property and services used primarily in farming.
(u) The term ``agricultural products'' includes agricultural,
horticultural, viticultural, and dairy products, livestock,
wildlife, poultry, bees, forest products, fish and shellfish,
and any products thereof, including processed and manufactured
products, and any and all products raised or produced on farms
and any processed or manufactured products thereof.
(v) The term ``material disclosures'' means the disclosure,
as required by this title, of the annual percentage rate, the
method of determining the finance charge and the balance upon
which a finance charge will be imposed, the amount of the
finance charge, the amount to be financed, the total of
payments, the number and amount of payments, the due dates or
periods of payments scheduled to repay the indebtedness, and
the disclosures required by section 129(a).
(w) The term ``dwelling'' means a residential structure or
mobile home which contains one to four family housing units, or
individual units of condominiums or cooperatives.
(x) The term ``residential mortgage transaction'' means a
transaction in which a mortgage, deed of trust, purchase money
security interest arising under an installment sales contract,
or equivalent consensual security interest is created or
retained against the consumer's dwelling to finance the
acquisition or initial construction of such dwelling.
(y) As used in this section and section 167, the term
``regular price'' means the tag or posted price charged for the
property or service if a single price is tagged or posted, or
the price charged for the property or service when payment is
made by use of an open-end credit plan or a credit card if
either (1) no price is tagged or posted, or (2) two prices are
tagged or posted, one of which is charged when payment is made
by use of an open-end credit plan or a credit card and the
other when payment is made by use of cash, check, or similar
means. For purposes of this definition, payment by check,
draft, or other negotiable instrument which may result in the
debiting of an open-end credit plan or a credit cardholder's
open-end account shall not be considered payment made by use of
the plan or the account.
(z) Any reference to any requirement imposed under this title
or any provision thereof includes reference to the regulations
of the Bureau under this title or the provision thereof in
question.
[(bb)] (aa) High-cost Mortgage.--
(1) Definition.--
(A) In general.--The term ``high-cost
mortgage'', and a mortgage referred to in this
subsection, means a consumer credit transaction
that is secured by the consumer's principal
dwelling, other than a reverse mortgage
transaction, if--
(i) in the case of a credit
transaction secured--
(I) by a first mortgage on
the consumer's principal
dwelling, the annual percentage
rate at consummation of the
transaction will exceed by more
than 6.5 percentage points (8.5
percentage points, if the
dwelling is personal property
and the transaction is for less
than $50,000) the average prime
offer rate, as defined in
section 129C(b)(2)(B), for a
comparable transaction; or
(II) by a subordinate or
junior mortgage on the
consumer's principal dwelling,
the annual percentage rate at
consummation of the transaction
will exceed by more than 8.5
percentage points the average
prime offer rate, as defined in
section 129C(b)(2)(B), for a
comparable transaction;
(ii) the total points and fees
payable in connection with the
transaction, other than bona fide third
party charges not retained by the
mortgage originator, creditor, or an
affiliate of the creditor or mortgage
originator, exceed--
(I) in the case of a
transaction for $20,000 or
more, 5 percent of the total
transaction amount; or
(II) in the case of a
transaction for less than
$20,000, the lesser of 8
percent of the total
transaction amount or $1,000
(or such other dollar amount as
the Bureau shall prescribe by
regulation); or
(iii) the credit transaction
documents permit the creditor to charge
or collect prepayment fees or penalties
more than 36 months after the
transaction closing or such fees or
penalties exceed, in the aggregate,
more than 2 percent of the amount
prepaid.
(B) Introductory rates taken into account.--
For purposes of subparagraph (A)(i), the annual
percentage rate of interest shall be determined
based on the following interest rate:
(i) In the case of a fixed-rate
transaction in which the annual
percentage rate will not vary during
the term of the loan, the interest rate
in effect on the date of consummation
of the transaction.
(ii) In the case of a transaction in
which the rate of interest varies
solely in accordance with an index, the
interest rate determined by adding the
index rate in effect on the date of
consummation of the transaction to the
maximum margin permitted at any time
during the loan agreement.
(iii) In the case of any other
transaction in which the rate may vary
at any time during the term of the loan
for any reason, the interest charged on
the transaction at the maximum rate
that may be charged during the term of
the loan.
(C) Mortgage insurance.--For the purposes of
computing the total points and fees under
paragraph (4), the total points and fees shall
exclude--
(i) any premium provided by an agency
of the Federal Government or an agency
of a State;
(ii) any amount that is not in excess
of the amount payable under policies in
effect at the time of origination under
section 203(c)(2)(A) of the National
Housing Act (12 U.S.C. 1709(c)(2)(A)),
provided that the premium, charge, or
fee is required to be refundable on a
pro-rated basis and the refund is
automatically issued upon notification
of the satisfaction of the underlying
mortgage loan; and
(iii) any premium paid by the
consumer after closing.
(2)(A) After the 2-year period beginning on the effective
date of the regulations promulgated under section 155 of the
Riegle Community Development and Regulatory Improvement Act of
1994, and no more frequently than biennially after the first
increase or decrease under this subparagraph, the Bureau may by
regulation increase or decrease the number of percentage points
specified in paragraph (1)(A), if the Bureau determines that
the increase or decrease is--
(i) consistent with the consumer protections against
abusive lending provided by the amendments made by
subtitle B of title I of the Riegle Community
Development and Regulatory Improvement Act of 1994; and
(ii) warranted by the need for credit.
(B) An increase or decrease under subparagraph (A)--
(i) may not result in the number of
percentage points referred to in paragraph
(1)(A)(i)(I) being less than 6 percentage
points or greater than 10 percentage points;
and
(ii) may not result in the number of
percentage points referred to in paragraph
(1)(A)(i)(II) being less than 8 percentage
points or greater than 12 percentage points.
(C) In determining whether to increase or decrease the number
of percentage points referred to in subparagraph (A), the
Bureau shall consult with representatives of consumers,
including low-income consumers, and lenders.
(3) The amount specified in paragraph (1)(B)(ii) shall be
adjusted annually on January 1 by the annual percentage change
in the Consumer Price Index, as reported on June 1 of the year
preceding such adjustment.
(4) For purposes of paragraph (1)(B), points and fees shall
include--
(A) all items included in the finance charge, except
interest or the time-price differential;
[(B) all compensation paid directly or indirectly by
a consumer or creditor to a mortgage originator from
any source, including a mortgage originator that is
also the creditor in a table-funded transaction;]
(B) all compensation from any source (other than
compensation taken into account in setting the interest
rate and for which there is no separate charge to the
consumer) paid directly or indirectly by a consumer or
creditor to--
(i) a mortgage originator, including a
mortgage originator that is also the creditor
in a table-funded transaction; or
(ii) an individual employed by or contracting
with the originator or a mortgage originator;
(C) each of the charges listed in section 106(e)
(except an escrow for future payment of taxes),
unless--
(i) the charge is reasonable;
(ii) the creditor receives no direct or
indirect compensation; and
(iii) the charge is paid to a third party
unaffiliated with the creditor; and
(D) premiums or other charges payable at or before
closing for any credit life, credit disability, credit
unemployment, or credit property insurance, or any
other accident, loss-of-income, life or health
insurance, or any payments directly or indirectly for
any debt cancellation or suspension agreement or
contract, except that insurance premiums or debt
cancellation or suspension fees calculated and paid in
full on a monthly basis shall not be considered
financed by the creditor;
(E) the maximum prepayment fees and penalties which
may be charged or collected under the terms of the
credit transaction;
(F) all prepayment fees or penalties that are
incurred by the consumer if the loan refinances a
previous loan made or currently held by the same
creditor or an affiliate of the creditor; and
(G) such other charges as the Bureau determines to be
appropriate.
(5) Calculation of points and fees for open-end
consumer credit plans.--In the case of open-end
consumer credit plans, points and fees shall be
calculated, for purposes of this section and section
129, by adding the total points and fees known at or
before closing, including the maximum prepayment
penalties which may be charged or collected under the
terms of the credit transaction, plus the minimum
additional fees the consumer would be required to pay
to draw down an amount equal to the total credit line.
(6) This subsection shall not be construed to limit the rate
of interest or the finance charge that a person may charge a
consumer for any extension of credit.
[(aa)] (bb) The disclosure of an amount or percentage which
is greater than the amount or percentage required to be
disclosed under this title does not in itself constitute a
violation of this title.
(cc) The term ``reverse mortgage transaction'' means a
nonrecourse transaction in which a mortgage, deed of trust, or
equivalent consensual security interest is created against the
consumer's principal dwelling--
(1) securing one or more advances; and
(2) with respect to which the payment of any
principal, interest, and shared appreciation or equity
is due and payable (other than in the case of default)
only after--
(A) the transfer of the dwelling;
(B) the consumer ceases to occupy the
dwelling as a principal dwelling; or
(C) the death of the consumer.
(dd) Definitions Relating to Mortgage Origination and
Residential Mortgage Loans.--
(1) Commission.--Unless otherwise specified, the term
``Commission'' means the Federal Trade Commission.
(2) Mortgage originator.--The term ``mortgage
originator''--
(A) means any person who, for direct or
indirect compensation or gain, or in the
expectation of direct or indirect compensation
or gain--
(i) takes a residential mortgage loan
application;
(ii) assists a consumer in obtaining
or applying to obtain a residential
mortgage loan; or
(iii) offers or negotiates terms of a
residential mortgage loan;
(B) includes any person who represents to the
public, through advertising or other means of
communicating or providing information
(including the use of business cards,
stationery, brochures, signs, rate lists, or
other promotional items), that such person can
or will provide any of the services or perform
any of the activities described in subparagraph
(A);
(C) does not include any person who is--
(i) not otherwise described in
subparagraph (A) or (B) and who
performs purely administrative or
clerical tasks on behalf of a person
who is described in any such
subparagraph; or
(ii) a retailer of manufactured or
modular homes or an employee of the
retailer if the retailer or employee,
as applicable--
(I) does not receive
compensation or gain for
engaging in activities
described in subparagraph (A)
that is in excess of any
compensation or gain received
in a comparable cash
transaction;
(II) discloses to the
consumer--
(aa) in writing any
corporate affiliation
with any creditor; and
(bb) if the retailer
has a corporate
affiliation with any
creditor, at least 1
unaffiliated creditor;
and
(III) does not directly
negotiate with the consumer or
lender on loan terms (including
rates, fees, and other costs).
(D) does not include a person or entity that
only performs real estate brokerage activities
and is licensed or registered in accordance
with applicable State law, unless such person
or entity is compensated by a lender, a
mortgage broker, or other mortgage originator
or by any agent of such lender, mortgage
broker, or other mortgage originator;
(E) does not include, with respect to a
residential mortgage loan, a person, estate, or
trust that provides mortgage financing for the
sale of 3 properties in any 12-month period to
purchasers of such properties, each of which is
owned by such person, estate, or trust and
serves as security for the loan, provided that
such loan--
(i) is not made by a person, estate,
or trust that has constructed, or acted
as a contractor for the construction
of, a residence on the property in the
ordinary course of business of such
person, estate, or trust;
(ii) is fully amortizing;
(iii) is with respect to a sale for
which the seller determines in good
faith and documents that the buyer has
a reasonable ability to repay the loan;
(iv) has a fixed rate or an
adjustable rate that is adjustable
after 5 or more years, subject to
reasonable annual and lifetime
limitations on interest rate increases;
and
(v) meets any other criteria the
Bureau may prescribe;
(F) does not include the creditor (except the
creditor in a table-funded transaction) under
paragraph (1), (2), or (4) of section 129B(c);
and
(G) does not include a servicer or servicer
employees, agents and contractors, including
but not limited to those who offer or negotiate
terms of a residential mortgage loan for
purposes of renegotiating, modifying, replacing
and subordinating principal of existing
mortgages where borrowers are behind in their
payments, in default or have a reasonable
likelihood of being in default or falling
behind.
(3) Nationwide mortgage licensing system and
registry.--The term ``Nationwide Mortgage Licensing
System and Registry'' has the same meaning as in the
Secure and Fair Enforcement for Mortgage Licensing Act
of 2008.
(4) Other definitions relating to mortgage
originator.--For purposes of this subsection, a person
``assists a consumer in obtaining or applying to obtain
a residential mortgage loan'' by, among other things,
advising on residential mortgage loan terms (including
rates, fees, and other costs), preparing residential
mortgage loan packages, or collecting information on
behalf of the consumer with regard to a residential
mortgage loan.
(5) Residential mortgage loan.--The term
``residential mortgage loan'' means any consumer credit
transaction that is secured by a mortgage, deed of
trust, or other equivalent consensual security interest
on a dwelling or on residential real property that
includes a dwelling, other than a consumer credit
transaction under an open end credit plan or, for
purposes of sections 129B and 129C and section 128(a)
(16), (17), (18), and (19), and sections 128(f) and
130(k), and any regulations promulgated thereunder, an
extension of credit relating to a plan described in
section 101(53D) of title 11, United States Code.
(6) Secretary.--The term ``Secretary'', when used in
connection with any transaction or person involved with
a residential mortgage loan, means the Secretary of
Housing and Urban Development.
(7) Servicer.--The term ``servicer'' has the same
meaning as in section 6(i)(2) of the Real Estate
Settlement Procedures Act of 1974 (12 U.S.C.
2605(i)(2)).
(ee) Bona Fide Discount Points and Prepayment Penalties.--For
the purposes of determining the amount of points and fees for
purposes of subsection (aa), either the amounts described in
paragraph (1) or (2) of the following paragraphs, but not both,
shall be excluded:
(1) Up to and including 2 bona fide discount points
payable by the consumer in connection with the
mortgage, but only if the interest rate from which the
mortgage's interest rate will be discounted does not
exceed by more than 1 percentage point--
(A) the average prime offer rate, as defined
in section 129C; or
(B) if secured by a personal property loan,
the average rate on a loan in connection with
which insurance is provided under title I of
the National Housing Act (12 U.S.C. 1702 et
seq.).
(2) Unless 2 bona fide discount points have been
excluded under paragraph (1), up to and including 1
bona fide discount point payable by the consumer in
connection with the mortgage, but only if the interest
rate from which the mortgage's interest rate will be
discounted does not exceed by more than 2 percentage
points--
(A) the average prime offer rate, as defined
in section 129C; or
(B) if secured by a personal property loan,
the average rate on a loan in connection with
which insurance is provided under title I of
the National Housing Act (12 U.S.C. 1702 et
seq.).
(3) For purposes of paragraph (1), the term ``bona
fide discount points'' means loan discount points which
are knowingly paid by the consumer for the purpose of
reducing, and which in fact result in a bona fide
reduction of, the interest rate or time-price
differential applicable to the mortgage.
(4) Paragraphs (1) and (2) shall not apply to
discount points used to purchase an interest rate
reduction unless the amount of the interest rate
reduction purchased is reasonably consistent with
established industry norms and practices for secondary
mortgage market transactions.
MINORITY VIEWS
H.R. 2570, the so called ``Mortgage Fairness Act of 2017,''
would erode important protections for would be homebuyers under
the Dodd-Frank Wall Street Reform and Consumer Protection Act
(``Dodd-Frank Act''), the Truth In Lending Act (``TILA''), and
the Real Estate Settlement Procedures Act (``RESPA''), among
other statutes.
This bill would weaken borrower protections under the
Consumer Financial Protection Bureau's (``Consumer Bureau'')
Ability to Repay rule by excluding certain types of mortgage
loan originator compensation (or commission payments) from the
points and fees cap for Qualified Mortgage, or ``QM'' loans.
Qualified mortgages are important loans that ensure that
borrowers have sufficient assets and income to repay their
mortgage loan, inclusive to all fees.
Generally, when a lender originates a QM loan, it must
follow the Consumer Bureau's Ability to Repay rule, including
the rule's three percent cap on points and fees for the
borrower's mortgage, to obtain a safe harbor under the rule.
H.R. 2570 would change this calculation by excluding certain
types of loan originator compensation from the three percent
cap. By changing the points and fees calculation in this way,
H.R. 2570 could incentivize originators to steer borrowers into
mortgage products that may not be in the best interest of a
homebuyer, and it would make it harder to trigger certain
borrower protections for certain high-cost mortgages.
Specifically, if a lender offers a borrower a high-cost
mortgage with an annual percentage rate (``APR'') or total
points and fees that exceed certain threshold amounts,\1\ the
borrower receives additional protections under the Home
Ownership and Equity Protection Act (``HOEPA'').\2\ For example
before making such a loan, a lender must provide the borrower
information in advance that explains that he or she is
receiving a high-cost mortgage, and disclose the terms, costs
and fees associated with the loan. The lender must also certify
that the borrower received homeownership counseling about the
high-cost mortgage being offered. These additional protections
help ensure the borrower is well informed before receiving
loan.
---------------------------------------------------------------------------
\1\For example, high cost mortgage protections are triggered for a
first mortgage loan if the APR is more than 6.5 percentage points
higher than the average prime offer rate, which is an estimate of the
rate people with good credit typically pay for a similar first
mortgage. In addition, a transaction will be a high-cost mortgage if
the total loan amount is $21,032 or more and the points and fees exceed
5 percent of the total loan amount, of if the total loan amount is less
than $21,032 and the points and fees exceed the lesser of $1,052 or 8
percent of the total loan amount. See https;//
files.consumerfinance.gov/f/201301_cfpb_high-cost-mortgage-rule_what-
it-means-for-consumers.pdf and https://www.gpo.gov/fdsys/pkg/FR-2017-
08-30/pdf/2017-18003.pdf.
\2\https://www.consumerfinance.gov/about-us/newsroom/consumer-
financial-protection-bureau-issues-rules-to-strenthen-protections-for-
high-cost-mortgages/
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More than a dozen national consumer and civil rights
groups, including the NAACP and the National Consumer Law
Center, wrote a letter to Congress opposing H.R. 2570,
explaining:
The high-cost loan rules currently discourage
kickbacks on loans where they are still allowed because
these payments count toward the coverage threshold
based on points and fees. H.R. 2570 would exclude
kickbacks from this trigger, creating an incentive for
loan originators to steer borrowers to overpriced loans
without getting the benefit of the high-cost loan
protections. . . . The supporters of the bill point out
that these kickback payments are incorporated into the
interest rate and claim that also including it in the
points and fees test is redundant. Incorporation into
the interest rate is the mechanism used to ensure that
the borrower is the one who is actually funding the
kickback that promotes steering. But this does not
necessitate a carve-out from the points and fees
threshold for high-cost loan protections. . . . Carving
out these kickbacks from the high-cost coverage rules
would disrupt the inclusive approach Congress adopted
and promote abusive loan steering and price gouging. We
urge you to oppose H.R. 2570. A vote to support this
bill is a vote to promote predatory mortgage
lending.\3\
\3\https://www.nclc.org/images.pdf/legislation/opp-letter-hr-
2570.pdf
Following the devastating financial crisis a decade ago,
Congress intentionally included all types of loan originator
compensation in the mortgage points and fees calculation to
disincentivize the types of abusive loan steering that
contributed to millions of foreclosures. congress should not
reverse course by repealing these critical safeguards for
families looking to buy a home.
For these reasons we oppose H.R. 2570.
Maxine Waters.
Carolyn B. Maloney.
Wm. Lacy Clay.
Daniel T. Kildee.
Michael E. Capuano.
[all]