House clears bill to ease limits on QM points and fees

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WASHINGTON — The House passed a bill Thursday that would loosen regulatory restrictions on the mortgage points and fees charged by lender-affiliated title insurers and other companies.

The Consumer Financial Protection Bureau caps points and fees at 3% for “qualified mortgages” that are in compliance with the agency’s ability-to-repay rule. However, certain real estate-related fees, such as for title insurance or appraisals, do not count toward the cap if they are paid to a company unaffiliated with the lender.

The Mortgage Choice Act, which passed the House 280-131, with support from both sides of the aisle, would exclude certain fees regardless of whether the company is an affiliate or not. It would also exclude insurance premiums that are held in escrow. A similar bill also passed the House in the previous Congress.

"By excluding these items from the calculation, it will allow more loans to qualify as QM and open up more credit to potential homebuyers," Rep. Keith Rothfus, R-Pa., said in the House floor debate Wednesday.

Supporters of the bill argue that leaving lender-affiliated companies out of the exemption can increase the cost of the mortgage, even if the loan is QM. That is counter to the intent of the CFPB rules, they say.

During a House Rules Committee hearing Monday evening, House Financial Services Committee Chairman Jeb Hensarling said many states already regulate title insurance rates, and borrowers don’t have to buy from an affiliated insurer. "But often the affiliated insurer is cheaper," Hensarling said.

A Jan. 22 House Financial Services Committee report on the bill, which was introduced by Rep. Bill Huizenga, R-Mich. — with both Republican and Democratic co-sponsors — said an affiliate charging lower fees than a non-affiliate “is a common occurrence.”

"In addition, escrowed homeowners insurance premiums may count as points and fees due to ambiguous drafting in the law," according to the committee report.

The bill was designed to address those issues. It has attracted widespread industry support from the mortgage, banking, credit union, real estate and homebuilding sectors.

"H.R. 1153 endeavors to restore a full and open competitive market by clarifying the definition of fees and points. In doing so, the legislation will ensure consumers more choices in credit providers and settlement service options," several trade groups wrote in a draft letter to lawmakers in October.

But some consumer groups and lawmakers say the legislation undermines the benefits of the QM rule.

The Center for Responsible Lending is concerned that title insurance fees will rise if Congress removes the cap that affiliated title companies can charge homebuyers.

"The QM rule in place now prevents title insurance fees from going out of control," said Yana Miles, senior legislative counsel at the center.

Rep. Michael Capuano, D-Mass., stressed that the QM rule imposes a cap on affiliated title insurers because of potential fraud and steering where bank loan officers direct homeowners to a particular title company in exchange for cash and other kickbacks.

In 2015, Wells Fargo and JPMorgan paid over $35 million to settle charges that they participated in an alleged kickback scheme with a title company.

"These are problems that exist. That is why we are opposed to this bill as currently written," Capuano said during the Rules Committee meeting Monday evening.

Rep. Maxine Waters, D-Calif., warned that the bill would "allow title insurance companies [to] inflate fees" and "will discourage homebuyers because it would allow more points and fees above the 3% cap."

But Rothfus said that applying the QM rule too narrowly particularly hurts borrowers who are seeking smaller mortgages. The restrictions on caps and fees “discourages financial institutions from lending to moderate-income and first-time homebuyers," he said.

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Qualified Mortgages Real estate Underwriting Appraisals Jeb Hensarling Maxine Waters