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House Considering Bill that Could Hurt Mortgage Borrowers

mortgage-bankers-associationA House bill sitting in the Financial Services Committee could weaken a key mortgage reform that was intended to protect homebuyers from excessive fees during the process of obtaining a mortgage, according to consumer lending organizations.

According to the Center for Responsible Lending, the Dodd-Frank Wall Street Reform and Consumer Protection Act was designed to restrict risky mortgage features such as high origination fees, balloon payments and interest-only payments.

The House bill would, instead, exempt certain fees from percentage point and fee limits for loans that meet the definition of the so-called “qualified mortgage.” The change, according to the center, would result in more expensive loans from borrowers.

“H.R. 1077 would weaken the consumer protections of QM loans by legislating a group of exceptions to get around the 3 percent points and fees threshold,” according to a letter to Congress last week calling for the defeat of the bill, which was signed by dozens of local, state and groups, including the NAACP, the Leadership Conference on Civil and Human Rights, the NAACP Legal Defense and Educational Fund, Inc. (LDF) and the National Council of La Raza.

“These exceptions include exempting compensation paid to mortgage brokers and loan officers and title insurance paid to a company affiliated with a lender from counting toward the 3 percent cap.

“The approach taken in this bill, which is misleadingly named the Consumer Mortgage Choice Act, is a flashback to the recent subprime crisis. During the subprime lending boom, borrowers often paid excessive origination costs, and increased compensation paid to loan originators often fueled these high fees.”

The four-page bill, introduced in March, is a series of amendments to the language in the Dodd-Frank Truth in Lending Act “to improve upon the definitions provided for points and fees in connection with a mortgage transaction.”

Supporters said the bill is important because the Dodd-Frank reform legislation included items that did not belong in the calculation. The QM is expected to be less costly to consumers because it builds in many protections for both borrowers and has reduced lender risks.

The legislation was introduced by Rep. Bill Huizenga  (R-Mich.) and had seven original cosponsors: Rep. Gregory Meeks (D-NY), Rep. William Lacy Clay (D- MO), Rep. David Scott (D-GA), Rep. Gary Peters (D-MI), Chairman Emeritus Spencer Bachus (R-AL), Rep. Edward Royce (R-CA), and Rep. Steve Stivers (R-OH).

The bill now rests before the Financial Services Committee, chaired by Rep. Jeb Hensarling (R-Texas). Rep. Maxine Waters (D-Calif.) is the ranking Democrat on the panel.

The measure has support from the National Association of Federal Credit Unions (NAFCU), a trade association that represents the nation’s federal credit unions, the Mortgage Bankers Association and Americans for Prosperity, a conservative political advocacy group. They contend the bill would provide greater clarity and lower the chances that risky mortgages would be issued.

The center said separately on its website, however, that black and Latino borrowers were disproportionately targeted and harmed during the subprime scandal because they were steered into more expensive loans than they normally would have qualified for and that the exceptions proposed in the current House bill “would create a new kind of incentive for future abusive lending that overcharges consumers.”

Jackie Jones, a journalist and journalism educator, is director of the career transformation firm Jones Coaching LLC and author of “Taking Care of the Business of You: 7 Days to Getting Your Career on Track.”

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One thought on “House Considering Bill that Could Hurt Mortgage Borrowers

  1. Robert A. Jones says:

    What Maxine Waters and you don't seem to recognize is that failure to pass this legislation would do further damage to the very people that you both seek to protect. The bill itself does not seek to allow indiscriminate fees to be added to mortgage origination charges, but to allow lower loan amounts to be profitable for banks and lenders to make. You see, it costs almost the same for a lender to process and fund a loan for $100,000 as it does to process and fund a loan for $400,000. However, when you restrict fees to a percentage of the loan amount you make it impossible for banks and lenders to profit on small mortgage loan amounts.
    For example, let's say that, as is the current guidelines, you cap what a bank can charge for a loan at 3%. Doing a mortgage for $80,000.00 would mean that the maximum that a bank could charge/make would be $2400.00. The (conservative) costs involved in making that loan would be $400.00 to $600.00 for the originator, $500.00 for processing and underwriting, $500.00 to $700.00 for the closing attorney, $200.00 for Title Insurance, $100 to $200.00 for recording fees, $350 to $500 for inspections and $450.00 for the appraisal, making the banks cost for doing the mortgage $2,400 to $2,700. While doing a mortgage for $400,000 would net the bank $12,000.00 in allowable fees while only costing $3,200 to $3,500 (All fees remaining the same except for the commission paid to the originator.)

    Now which loans do you think the banks and lenders are going to make and which ones do you think that they are going to pass on? Which portion of the population is going to be passed on when it comes to the opportunity, and who will not be able to sell their homes to move up because the banks have chosen not to lend to their potential buyers?

    You need to do the research and make an informed opinion when it comes to the protection of the rights and liberties of the people affected by legislation and not react based upon emotion. I am very much for the right of all Americans to own a home and have worked with borrowers and first time buyers across the spectrum of race, gender, religion, and national origin. But this is not a question of race, it is a question of economics. Everyone of us works in the hope of realizing a profit, if only enough to make ends meet, and none of us can operate in a deficit and hope to survive.
    The days of the sub-prime mortgage are over and they are not coming back. HB 1077 is not about allowing exorbitant fees and racking in huge profits, it is about allowing banks to do small mortgages for families without having to take a loss. Banks will survive without HB 1077, but they will do so at the expense of the very lower to middle class consumers that you claim to be championing by opposing this legislation. They simply will not be able to do small mortgage loans and this fact will be true across the board without respect to race, gender, religious preference, or nationality.

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