Today, Congresswoman Maxine Waters (D-CA), Ranking Member of the Committee on Financial Services, gave the following floor statement in opposition to H.R. 1153, the so-called Mortgage Choice Act of 2017:
As Prepared for Delivery
Thank you Madam Speaker. I rise today in opposition to H.R. 1153, the so-called “Mortgage Choice Act of 2017”. Unfortunately, this bill is yet another attempt to undermine the strong consumer protections Democrats established under the Dodd-Frank Wall Street Reform and Consumer Protection Act, taking us back to the days of the subprime bubble.
While some of my colleagues on the other side of the aisle have forgotten those days, I haven’t. I remember how predatory lenders targeted unsuspecting homebuyers by hiding fees and obscuring loan costs, tricking them into exploding mortgages, and locking them into loans that they really couldn’t afford. Millions of homebuyers were steered into high cost subprime loans, even when they qualified for prime mortgages. And lenders didn’t even bother to verify whether or not borrowers had the ability to repay their mortgages. They weren’t required to do that and so they didn’t. The end result was rampant fraud on a massive scale, to millions of foreclosures, and a tremendous loss of generational wealth, particularly for black homeowners. Some of my constituents are still struggling and trying to recover from the financial devastation that occurred during this financial crisis.
The last thing Congress should do is to open the door to a return to these fraudulent and harmful policies. And yet that’s exactly what H.R. 1153 would do. This bill seems like a technical fix—to allow affiliated title insurance and settlement services firms to be excluded from the Qualified Mortgage rule’s 3 percent cap on upfront points and fees paid by borrowers. But make no mistake, there is nothing technical about this. In fact, this bill would allow title insurance companies to jack up prices on borrowers and allow lenders to receive what would otherwise be illegal kickbacks. Under this bill, lenders, including repeat offender megabanks like Wells Fargo, would have new opportunities to reap huge financial profits at their customers’ expense by steering them into costly title insurance policies that have no cap on fees whatsoever.
Prior to the enactment of Dodd-Frank, lenders were able to earn tremendous profits through lucrative kickbacks paid by their affiliates. The Real Estate Settlement Procedures Act, or RESPA, prohibits giving a “fee, kickback, or thing of value” in exchange for a referral of business related to a real estate settlement service. But this kickback prohibition does not apply to affiliated companies of lenders, like a title insurance firm. To avail themselves of this kickback loophole, some lenders have bought, or created businesses, to enable them to profit directly from the relationship.
So Dodd-Frank established the responsible underwriting practice of requiring lenders to verify borrowers’ ability to repay when they originate a loan. Dodd-Frank also enabled lenders to obtain some legal protections when making residential mortgages if those loans are considered a Qualified Mortgage or “QM.” To be considered QM, a loan must have terms and conditions that are understandable to borrowers and not contain predatory features considered to be unfair or deceptive. QM loans, for example, can’t be interest-only loans, longer than 30 years, or have balloon payments. Specific to the bill we are considering today, the amount of upfront points and fees on QM loans cannot exceed 3 percent of the total amount of the loan. In short, QM loans are supposed to be low-risk, prudently underwritten, and free from the type of features associated with those predatory mortgages that trapped borrowers in loans they couldn’t afford and that led to the financial crisis.
The points and fees cap included under the QM definition includes, among other things, real estate-related fees paid to affiliates of the lender for services, such as property appraisals, settlement services, and title insurance. Fees paid to affiliates of the lender pose greater risks to borrowers, since lenders can steer borrowers directly to their affiliates—without open competition—and higher prices charged by affiliates directly benefit the lender.
Affiliated title insurance is especially problematic. The title insurance industry is notoriously opaque. Due to a lack of competition and readily available information on terms and pricing, consumers do not shop around for title insurance as they might for other products and services.
And megabanks, like Wells Fargo, have used title insurance to take advantage of consumers through illegal kickback schemes. The Consumer Bureau took an enforcement action in 2015 against Wells Fargo and JPMorgan Chase, ordering these megabanks to pay more than $24 million in civil penalties and more than $11 million to consumers harmed by their kickback schemes with Genuine Title, a now-defunct title company. At the time, Director Cordray said that, “These banks allowed their loan officers to focus on their own illegal financial gain rather than on treating consumers fairly. Our action today to address these practices should serve as a warning for all those in the mortgage market.”
Madam Speaker, these kickback schemes continue despite Congress’ efforts to shut them down, and would likely increase if H.R. 1153 is enacted. Because H.R. 1153 would remove fees that are charged by a lender’s affiliate title insurance company from the QM fee cap, the bill directly encourages lenders to once again steer borrowers to their affiliates so they can extract even more money from them.
Supporters of the bill argue that, because individual states provide adequate regulation over the title insurance industry, it is unnecessary, they say, to have additional safeguards related to affiliated title companies and the fees they charge. However, research from the National Association of Insurance Commissioners shows that state laws do not, by themselves, offer robust protection to consumers with title insurance. More than half of all states don’t even collect data from title agents. Some states have “no particular standard” for determining whether title insurance rates are adequate, and even a couple, like Illinois and Arkansas, do not regulate title insurance rates at all.
Congress should be strengthening prohibitions on kickbacks, not weakening them. We should enable borrowers to get the best price, terms, and conditions on mortgage loans instead of creating more ways for megabanks like Wells Fargo to gouge American consumers.
When Congress considered this same measure last term, the Obama Administration issued a veto threat, stating that the bill “risk[ed] eroding consumer protections and returning the mortgage market to the days of careless lending focused on short-term profits.” Madam Speaker, buying a home is likely the largest purchase most consumers will ever make. For this very reason alone, Congress should reject proposals, like H.R. 1153, that would permit residential mortgage lenders to take advantage of borrowers trying to achieve the American dream.
Finally, a long list of groups, including civil rights groups such as the NAACP and the Leadership Conference on Civil and Human Rights, as well as consumer groups at the national, state and local level, like Americans for Financial Reform, National Consumer Law Center and Center for Responsible Lending, all oppose the so-called Mortgage Choice Act.
So for all these reasons, I strongly urge my colleagues to join me in opposing H.R. 1153. And, with that, I reserve the balance of my time.