Protecting Consumer Choice: Legislation Would Fix Qualified Mortgage Rule

By Gretchen Wegrich

A new bill introduced to congress called the Consumer Mortgage Choice Act would adjust how points and fees are calculated, allowing more mortgage lenders to fall under the Qualified Mortgage distinction created by the Dodd-Frank Act’s Ability-to-Repay Rule.

If passed, the Consumer Mortgage Choice Act would qualify more loans as QM mortgages under the ability to repay rule, increasing access to affordable credit within the housing market, said Mortgage Bankers Association (MBA) chairwoman Debra Still.  

According to the Dodd-Frank Act, loans with points and fees greater than 3 percent of the total loan value are disqualified from the Qualified Mortgage distinction, putting lenders at risk for regulatory action.

The result is more expensive loans, since lenders must attach extra liabilities to any loans made above the 3% point-and-fee maximum for a qualified mortgage classification.

If passed and enacted, the proposed bill would end fees paid to lender-affiliated title entities; prevent double counting of loan officer compensation; exclude funds held in escrow for mortgage insurance from the calculation, along with any lender charges needed to cover Loan Level Price Adjustments charged by Fannie Mae and Freddie Mac.

At issue is the fact that fees and points are calculated differently by real estate and title company-affiliated mortgage firms and unaffiliated firms. Mortgage companies with affiliates are required to count title and certain escrow charges, including insurance, when calculating fees and points relating to the 3 percent cap on fees and points in the Qualified Mortgage test.

For consumers, this difference means a large percentage of borrowers would be denied the choice of using an affiliate company. The end result would be decreased competition between mortgage lenders as well as settlement service providers.

Additionally, under the proposed legislation, lender-paid compensation to correspondent banks or mortgage brokers in a wholesale transaction from points and fees calculation would not be counted.

Rep. Bill Huizenga, R-Mich., introduced the bipartisan legislation as H.R. 1077. There will be hearings held in late spring. The National Association of Realtors is working to support this bill.

The bill is sponsored U.S. Representatives David Scott (D-GA), Ed Royce (R-CA), William Lacy Clay (D-MO), Steve Stivers (R-OH), Gregory Meeks (D-NY), Spencer Bachus (R-AL) and Gary Peters (D-MI).

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Gretchen Wegrich

Gretchen Wegrich is an editor at Lender411. She specializes in mortgage basics, personal finance and green living. She graduated with a bachelor's degree in writing from University of California, San Diego and previously worked at the Santa Cruz Sentinel. Contact her at gretchen@lender411com.