MBA Offers Support to ‘Common-Sense’ Regulatory Changes

Mortgage Bankers Association Chairman-Elect Chris George, in testimony yesterday before a House subcommittee, offered the association’s support for two bills he said offer “practical solutions to improve the efficiency of mortgage market regulations.”

George, founder, president and CEO of CMG Financial, San Ramon, Calif., testified (https://financialservices.house.gov/uploadedfiles/hhrg-115-ba15-wstate-cgeorge-20171207.pdf) before the House Financial Services subcommittee on Housing and Insurance as part of the subcommittee’s series on Legislative Proposals for a More Efficient Federal Financial Regulatory Regime. He spoke in support of two bills under subcommittee consideration:

–HR 2570, the Mortgage Fairness Act (https://financialservices.house.gov/uploadedfiles/bills-115hr2570ih.pdf), introduced by Rep. Bill Posey, R-Fla., which would amend the Truth in Lending Act to revise the definition of “points and fees” under a high-cost mortgage and to clarify that the points and fees in connection with a mortgage loan do not include certain compensation amounts already taken into account in setting the interest rate on such loan, and for other purposes; and

–The Comprehensive Regulatory Review Act of 2017 (https://financialservices.house.gov/uploadedfiles/bills-115-crra-pih.pdf), introduced by Rep. Barry Loudermilk, R-Ga., which would amend the Economic Growth and Regulatory Paperwork Reduction Act of 1996 to ensure that Federal financial regulators perform a comprehensive review of regulations to identify outdated or otherwise unnecessary regulatory requirements imposed on covered persons.

In his testimony, George noted HR 2570 aims to improve a provision of the Ability to Repay rule and Qualified Mortgage standard that generates unequal treatment of loans originated by mortgage brokers. The ATR rule and QM standard includes fees paid by a wholesale lender to a mortgage broker in the calculation of points and fees, which is used to determine whether a loan qualifies for the QM safe harbor. However, fees paid by a wholesale lender to a mortgage broker are already reflected in the interest rate offered to the consumer, resulting in a double-counting of these fees.

“One of the most significant features of the Dodd-Frank Act was the requirement that lenders, during the underwriting process, carefully demonstrate a mortgage borrower’s ability to repay their loan,” George said. “And while the Qualified Mortgage standard that was developed by the Consumer Financial Protection Bureau was not meant to limit mortgage originations to only loans that meet this standard, the significant potential liability and litigation expenses for violations of the Ability to Repay rule have directed the vast majority of the market towards QM loans that provide safe harbor from potential litigation.”

George said as the ATR rule and QM standard have been implemented, MBA has consistently maintained the view that mortgages originated with the same interest rate and other product features should be treated equally from a regulatory perspective, regardless of the originator’s business model.

“Because of this double-counting, loans originated through mortgage brokers are more likely to exceed the maximum allowable points and fees under the ATR rule and QM standard,” George said. “This treatment results in some loans originated by mortgage brokers failing to qualify for QM safe harbor, while the exact same loans would have qualified if originated through a different channel.”

HR 2570 would eliminate this double-counting and level the playing field for mortgage brokers, increasing competition in the lending market. “We think this would ultimately benefit consumers, in particular low to moderate income consumers, by giving them greater choice when they go to shop for a loan, and thus potentially lowering their borrowing costs,” George said.

George also expressed support for the Comprehensive Regulatory Review Act, saying it would eliminate ambiguity to ensure the Federal Financial Institutions Examination Council undertakes the timely review and elimination of any unnecessary regulations.

“The proposed legislation requires comprehensive reviews every five years, rather than the current once-per-decade requirement,” George said. “A shorter interval between reviews will prompt regulators to move more quickly to relieve the burden of outdated regulations or identify those that are otherwise unnecessary. Given the fast pace of technological innovation in today’s market, a more frequent regulatory review cycle is critical to ensuring that regulations keep pace with the market and do not stifle innovation.”

The result, George said, would be that the regulator’s responsibility would no longer end with just an inventory of unnecessary regulations, but with the elimination of unnecessary regulations. “In addition, each regulation must be tailored in a manner that limits its regulatory compliance impact, cost and liability risk,” he said. “In this way, the proposal provides actual regulatory relief. MBA sees this proposed legislation as having a positive impact on the efficiency of mortgage market regulations.”