On Thursday, the House voted 280-131 to pass H.R. 1153, the Mortgage Choice Act of 2017, a CUNA-backed regulatory bill that was created in an effort to provide relief to mortgage lenders by excluding certain charges from the points and fees calculation.
This bipartisan legislation, sponsored by Capital Markets, Securities, and Investment Subcommittee Chairman Rep. Bill Huizenga (R-Michigan), would preserve consumer choice and potentially help more Americans achieve the dream of homeownership—specifically low- and moderate-incomes and first-time homebuyers.
“I re-introduced the Mortgage Choice Act, bipartisan legislation to modify and clarify the way ‘points and fees’ are calculated and help families across America to one-stop shop,” said Huizenga. “This legislation is narrowly focused to promote access to affordable mortgage credit without overturning the important consumer protections and sound underwriting required under Dodd-Frank's "ability to repay" provisions.”
Huizenga continued, “These common-sense changes will help low and moderate income families as well as first-time homebuyers access affordable mortgage credit and experience the benefits of one-stop shopping by ensuring that safe, properly underwritten mortgages pass the qualified mortgage test.”
Under the new legislation, the Qualified Mortgages (QM) cannot have a points and fees value of more than 3 percent of the loan amount. Additionally, the bill would remove the following from the points and fees calculation:
- Title insurance purchased from a company affiliated with the lender (purchases from a non-affiliated title insurer currently do not count against points and fees)
- Escrowed homeowners insurance premiums
While this is potentially a positive development for consumers as it increases competition in the mortgage markets, according to Tendayi Kapfidze, Chief Economist at LendingTree, borrowers should note that some mortgages may end up costing more as title insurance and mortgage insurance are excluded from the points and fees calculation. This makes it prudent that borrowers consider all expenses incurred when getting a mortgage to understand the full cost.
“This is a rare bipartisan piece of legislation, which means it is more likely to be a well-considered legislative action," Kapfidze said. "However, the lead congressman on the bill lacks a full appreciation of how the mortgage market works. Huizenga’s remarks on the bill noted that homebuyers could 'experience the benefits of one-stop shopping.' Unfortunately, this is the exact opposite of what borrowers should do."
Kapfidze continued, "Shopping multiple offers is the best way for borrowers to ensure they get the best loan as the savings available can run into the tens of thousands of dollars. The mortgage offer from a lender affiliated with a real estate company or agent should be just one stop, not one-stop shopping, in the mortgage search for a potential borrower."
Holden Lewis, Research Analyst for NerdWallet commented that few consumers comparison-shop for title insurance because it's difficult for borrowers to make sense of the fees they are being charged, and this bill could make it harder to decipher those disclosures.
“If the Mortgage Choice Act passes the Senate and is signed into law, smart borrowers will break that habit and will shop for title insurance instead of simply accepting the title insurance quote that they’re given,” said Lewis. “The solution is to shop multiple title companies. Consumers can start by shopping multiple mortgage lenders, too, instead of automatically going with a lender that’s affiliated with their real estate agent’s brokerage.”
However, according to CUNA President and CEO Jim Nussle, the Mortgage Choice Act is a common-sense piece of legislation that would bring more consistency to the lending process, providing consumers with more access to mortgage credit and more choices in credit providers. “This has seen bipartisan support in this and the previous Congress, and CUNA will continue our work to move it forward in the process,” he said.
Additionally, Financial Services Committee Chairman Jeb Hensarling urged the passing of the act during the meeting on Thursday.
“The Mortgage Choice Act is needed because the CFPB wrote a flawed and problematic definition that grossly miscalculates points and fees, and the result is that many mortgage loans—particularly those for low and moderate-income borrowers—would not meet the standards of a Qualified Mortgage and thus not get made,” Hensarling said.