House Passes Two Dodd-Frank Loan Rules Bills

The U.S. House of Representatives on Tuesday passed a pair of bills designed to loosen Dodd-Frank Act, rules that had purportedly discouraged lending for manufactured homes and exempt certain insurance and other fees from the limits imposed by the “qualified mortgage” rule.

Lawmakers voted 286-140 to pass H.R. 685, the Mortgage Choice Act, and 263-162 on H.R. 650, the Preserving Access to Manufactured Housing Act, amid opposition to both bills from a number of Democratic lawmakers. The Mortgage Choice Act would roll back important Dodd-Frank protections and undermine the work of the U.S. Consumer Financial Protection Bureau by driving up the cost of mortgages, helping to “fatten the pockets of those who would gouge our constituents,” argued House Financial Services Committee ranking member Rep. Maxine Waters, D-Calif.

But Financial Services Committee Chairman Jeb Hensarling, R-Texas, said it would help cut through unintended consequences of Dodd-Frank as well as subsequent “bad and dumb” regulatory overreaches that have harmed access to credit.

“We’ve got to quit protecting consumers right out of their homes,” Hensarling said.

The Mortgage Choice Act would ament the Truth in Lending Act to exclude charges levied by a title insurance provider affiliated with a lender from the fee caps included under the CFPB’s qualified mortgage, or QM, definition, bringing them in line with the current treatment of third-party title insurers. Fees and taxes held in escrow to be passed on to the government or other third parties would also be excluded from the fee cap.

For a loan to qualify as a QM, lenders must meet certain criteria, such as keeping the loan within certain debt-to-income ratios for borrowers and capping the points and fees that are charged at 3 percent of loan principal.

In return, lenders receive “safe harbor” or “rebuttable presumption” protections, giving them defenses in legal actions brought by borrowers over certain issues with their mortgages.

Under PAMHA, the fee and interest rate thresholds under which loans for manufactured homes are considered “high cost” under the Home Ownership and Equity Protection Act would be raised, with that exemption extended to apply to homes worth up to $75,000, up from a ceiling of $50,000.

This is because the cost, and thus fees, associated with originating and servicing a low-value loan are typically higher in percentage terms than for a larger loan, meaning that under HOEPA they are wrongly considered “high-cost” loans that come with a range of drawbacks for lenders, according to the bill’s sponsors, who argue that these small-value loans are not the sort of predatory loans HOEPA is intended to protect against.

The White House has made clear it will veto both bills if they come to the president’s desk, saying in statements Monday that it believed each would “weaken key consumer protections and provisions” included in Dodd-Frank.

In addition to the two bills passed Tuesday, lawmakers also easily passed a group of six bills from the House Financial Services Committee on Monday, including several other changes to lending law.

The legislation passed included the Capital Access for Small Community Financial Institutions Act, which would allow private credit unions to become part of the Federal Home Loan Bank System, giving them broader access to low-cost credit for lending, and the Helping Expand Lending Practices in Rural Communities Act.

Under that bill, individuals would be able to apply for a rural area designation if they are outside the official U.S. Department of Agriculture rural area definitions now used by the CFPB to possibly take advantage of the looser QM standards that apply for rural loans.

Lawmakers also agreed to the passage of the SAFE Act Confidentiality and Privilege Enhancement Act, which would enable public officials overseeing the financial services industry to share information submitted to the Nationwide Mortgage Licensing System and Registry — which keeps track of certain financial services licensing and registration information — without losing privilege or confidentiality protections.