In advance of final votes today, Congresswoman Maxine Waters (D-CA), Ranking Member of the Committee on Financial Services, led efforts to oppose the so-called “Mortgage Choice Act,” (H.R. 685) a measure that would weaken vital consumer protections for low-income Americans looking to purchase a home, exponentially increase mortgage costs, and undo the critical work of the Consumer Financial Protection Bureau (CFPB) by allowing a return to the practices frequently used in the period prior to the financial crisis.
In her remarks, Waters highlighted the different ways the proposal would burden vulnerable consumers, pointing to excessive upfront fees, rollbacks of caps on points and fees instituted by the CFPB that leave consumers exposed to interest rates as high as 14 percent, and incentivized kickbacks that would limit much-needed competition that helps keep housing prices affordable for homebuyers.
The Ranking Member also noted that a broad coalition of civil rights and advocacy groups have come out in opposition to the H.R. 685, and that President Obama has indicated that he will likely veto the measure upon passage.
Waters’ full remarks are below:
“Thank you, Mr. Chairman.
I rise today in opposition to H.R. 685, the “Mortgage Choice Act,” which would roll back protections for homebuyers, make mortgages more expensive, undermine Dodd-Frank and undo the important work of the Consumer Financial Protection Bureau.
During the period leading up to the financial crisis, lenders often piled on excessive upfront fees by exploiting the opaque pricing and sales system for settlement services like title insurance that too often left borrowers without the information necessary to shop around or negotiate for lower prices.
In response, the Dodd-Frank Act entrusted the CFPB with the responsibility of ensuring that lenders and their affiliated companies were restrained from charging excessive fees
One way the CFPB achieved this was through a standard known as a “qualified mortgage,” which, among other things, placed a 3 percent cap on upfront fees.
This three percent fee cap includes fees paid to affiliates of the lender for services such as property appraisals, settlement services, and title insurance. And it is these fees that pose the greatest risks to consumers, since they invite lenders to steer borrowers directly to their affiliates – without open competition – and with higher prices.
In the past, creditors have offered incentives like reduced office rent, bonuses, commissions, or other financial perks in exchange for business referrals. Though Dodd-Frank banned these types of kickbacks, some creditors are circumventing it by buying or creating businesses so that they can profit by referring their customers to their affiliated service providers.. Others, like JP Morgan and Wells Fargo, recently settled cases of wrongdoing within the past year for engaging in a kickback scheme with an affiliated title company.
But instead of strengthening this ban on kickbacks, today this House considers legislation that would actually incentivize these cozy relationships – which increase creditor’s profits at the expense of consumers. In some cases, these referral financial incentives are as much as half of the premiums homebuyers pay.
Buying a home is complex, and consumers should not have to be worried that their service providers are colluding to scam borrowers. Instead they should be competing to provide them the best prices.
H.R. 685 would undermine the CFPB’s definition of affiliated services by removing title insurance fees charged by affiliates of the lender from the 3 percent cap. As a result, creditors will actually be encouraged to direct borrowers to expensive affiliates – codifying a system of kickbacks in our laws. This is not only detrimental to consumers but to small businesses that provide unaffiliated title insurance.
Title insurance is already an uncompetitive market, and state protections are often weak, and at times, nonexistent. This measure will, ironically, ensure even fewer choices for consumers because consumers rarely know that other options exist, and given the complexity of the homebuying process, they will often simply rely on the recommendations of their lender, who under H.R. 685, can simply refer them to affiliated entities who can then charge excessive fees without regard for QM’s 3 percent cap.
Mr. Speaker, a diverse coalition ranging from the NAACP and the National Council of La Raza to the Center for American Progress and the Center for Responsible Lending have all voiced their opposition to the Mortgage Choice Act, and the Obama Administration has pledged to veto the measure.
We need only reflect on the 2008 mortgage crisis to understand that lenders too often focused on profiting from upfront payments through points and fees, rather than taking care to originate loans whose value derived from long-term performance.
I’m alarmed at how short our memories have become. It’s barely been five years since the worst of the crisis subsided, and we’re already welcoming a return to the abusive practices that contributed to the subprime meltdown.
This measure will drive up the cost of mortgages, limit competition, and ultimately hurt consumers. I urge my colleagues to oppose it.”