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Waters Floor Statement in Opposition to Bill to Remove Consumer Protections for Mortgages

Today, Congresswoman Maxine Waters (D-CA), Ranking Member of the Committee on Financial Services, gave the following floor statement in opposition to H.R. 3971, a bill that would allow mortgage servicers to drop important consumer protections put in place by the Dodd-Frank Wall Street Reform and Consumer Protection Act:

As Prepared for Delivery

I rise today in opposition to H.R. 3971. Contrary to what is implied by its title, H.R. 3971 would not provide regulatory relief to community banks. Instead, this bill would allow a large number of mortgage servicers to drop important consumer protections and set the stage for a return of the harmful practices of the subprime meltdown and the worst financial crisis since the Great Depression.

Dodd-Frank tasked the Consumer Financial Protection Bureau with implementing mortgage rules under the Truth in Lending Act that would restrict the types of practices that led to the financial crisis. This bill would harm consumers by raising the Consumer Bureau’s exemption threshold on escrow account requirements for higher-priced mortgage loans. Mortgages are classified as “higher-priced” if the annual percentage rate, or APR, exceeds the average prime offer rate by 1.5 percent, and higher-priced mortgage loans often reflect riskier or subprime borrowers.

Pursuant to the Dodd-Frank Act, the Consumer Bureau issued escrow rules that require borrowers with higher-priced mortgage loans to escrow their homeowners insurance, property taxes, and private mortgage insurance for at least the first five years of their mortgage.

Escrow accounts are an important consumer protection mechanism, especially for higher-risk borrowers, because they ensure that homeowners have funds for these expenses, thereby reducing mortgage defaults or loss of the property. In fact, before the Consumer Bureau issued its final rule on escrow requirements in 2013, a Federal Reserve study from 2011 found that consumers with higher-priced mortgages that did not have an escrow account in the first year after the consummation of their mortgage had higher instances of default.

Escrow accounts also keep homeowners from being blindsided by additional costs at the end of each year and provide a more accurate monthly cost estimate for homeownership when the loan is originated. That is why the Consumer Bureau’s rules are designed to ensure that homeowners understand and can meet the full costs of homeownership.

But even though escrow accounts are particularly important for these higher-priced loans, they are certainly not unique. In fact, most homeowners escrow these funds. Loans insured by the Federal Housing Administration and the U.S. Department of Agriculture must have borrower escrow accounts, and conventional mortgages with a loan-to-value ratio of 80% or higher require them as well.

I have not heard a single convincing argument as to what is so burdensome about banks with $25 billion in assets ensuring that their borrowers have enough money set aside every month to pay their taxes and insurance.

Furthermore, banks with less than $2 billion in assets that serve rural or underserved areas are already exempt from the Consumer Bureau’s escrow requirements, which reflects the Bureau’s commitment to balanced and tailored regulations. This bill would make a dramatic leap from the Consumer Bureau’s targeted relief and exempt banks up to $25 billion in assets, or over 98 percent of banks, from the escrow requirement. And they would get this exemption regardless of whether they are serving underserved borrowers, and without any evidence that this large exemption would increase access to credit for those who need it.

The Consumer Bureau also addressed the fact that large servicers, and especially servicers that serviced loans they did not own for an extended period of time, often did not adequately communicate with customers or appropriately track paperwork. During the crisis, this contributed to millions of unnecessary foreclosures and later on, several billion dollar settlements for abusive and fraudulent business practices.

In its rule, the Consumer Bureau also provides other flexibilities through exemptions to the Real Estate Settlement Procedures Act loan servicing and escrow account administration requirements to only small bank servicers, if they and their affiliates own the loans they service, and service no more than 5,000 loans each year. H.R. 3971 would increase this exemption by 500% from 5,000 loans a year to 30,000 loans, allowing significantly larger bank servicers to avoid these important consumer safeguards, and only requiring the lenders to hold the loans in portfolio for three years.

Let’s be clear: homeowners do not get to choose their own mortgage servicer, and the least we can do is ensure that they are adequately protected after they sign on the dotted line.

As we saw leading up to the 2008 financial crisis, servicers often choose profits over people and that is why we need the Consumer Bureau to look out for the needs of consumers. The Consumer Bureau has continued to do its job in spite of the unrelenting Republican campaign to slow it down or eliminate it completely.

Simply put, H.R. 3971 would enable larger servicers, whose incentives are not aligned with the owners of the loans or the borrowers, to be able to revive the abusive practices involved with predatory lending that contributed to the 2008 financial crisis. This is the second time in less than two weeks that I have come before you to discuss a bill that would erode vital consumer protections under the Truth in Lending Act for borrowers with high-priced mortgage loans. I cannot support legislation that would keep consumers looking at high-cost mortgages from the vital protections and scrutiny they deserve.

For all these reasons, I oppose H.R. 3971 and reserve the balance of my time.


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