HR 1077, proposed by Rep. Bill Huizenga (R-MI), the Consumer Mortgage Choice Act, is aimed at amending the Truth-in-Lending Act (TILA). In simplest terms, HR 1077 would help in further defining exactly what is and is not included in the three percent rules that came about due to Dodd-Frank reform.
Andy Harris, president of Vantage Mortgage Group in Lake Oswego, Ore., has created The Future of Mortgage Lending, a Web site to show support for HR 1077, as well as help in educating those unfamiliar with the issue. He’s also hoping that the site benefits the Consumer Finance Protection Bureau (CFPB) by providing a more well-rounded view of the Qualified Mortgage (QM) rules, which are currently being redefined as part of HR 1077.
“I was inspired to create this site because the media lacked specific examples when it came to a response for the final ruling on the Qualified Mortgage. Consumer and other special groups I understand will have impact on the decisions made by the CFPB,” said Harris. “What I believe both consumers and our policy makers are not aware of is truly what Service Release Premium (SRP) and Yield Spread Premium (YSP) both mean in today’s market, analytically to the consumer’s terms.”
The central complaint of the three percent rule imposed by the Dodd-Frank Act is that the fees included could end up harming consumers as what can be included in the three percent is not clearly defined.
“The focus here is on fair lending and consumer choice and education,” Harris said. “The facts are that you could potentially have a lower rate and cost loan under the wholesale channel, yet under the QM three percent cap it would reflect a higher cost loan when compared to someone using a temporary fund or line of credit for the same agency-backed loan. It’s just plain wrong. It just doesn’t make any sense and there is no support for the final definition released by the CFPB.”
While the three percent cap is geared toward creating safe harbor for QM and provide provisions related to foreclosure, the percentage is nebulous in nature and not at all clearly defined by the CFPB or lawmakers in any capacity. While controversial, it is important to fully-define just what can be included in the intended three percent. Since the site’s launch, Harris has been met a mixed-reaction from visitors.
“The response has been good—more mixed than I anticipated, but a lot of traffic. I have come to realize that many originators and non-originators in the industry do not understand the details on the examples used. I am a little concerned by this, but the majority do seem to understand and support it. This is an issue not about us, it’s about the consumers we serve,” Harris said. “This is not about me, but I’ve released my name in full disclosure just because I developed the content on the site. I think many are hesitant as they always will be due to their own company and/or special interests or if they are no longer ‘brokering’ or understand the new wave of mortgage broker and small business dealing with consumers.”
There are those of the opinion that HR 1077 will present greater opportunities for those to exploit incentives that could lead to abusive lending practices. In May, the Center for Responsible Learning issued a statement reading:
“A new House bill would weaken a key mortgage reform by allowing loans with excessive fees to improperly meet the Qualified Mortgage definition. Qualified Mortgage loans are intended to benefit borrowers because they are restricted from having risky features such as high origination fees, balloon payments and interest-only payments.”
“I hope that people can see that the importance of having every consumer option regulated in a fair and accountable fashion. I wish that people would care about the facts of how this falls onto the consumer directly in regards to future changes that can apply and why disclosures must be transparent and viewed the same way for same loan type, regardless of origination channel,” Harris said. “I also feel that small business and local representation is vital for consumers.”