On the surface, the Consumer Mortgage Choice Act (HR.1077/S.949) sounds like legislation that would be good for consumers. In actuality, it poses some serious threats to mortgage protections recently put in place by the Consumer Financial Protection Bureau (CFPB).
The CFPB recently finalized ability-to-pay rules that include a definition for a qualified mortgage (QM). The qualified mortgage definition incentivizes safe and sustainable mortgage lending by providing some protections from lawsuits to lenders in exchange for offering affordable, soundly structured loan terms. In order to be classified as a qualified mortgage, the total fees and points that can be assessed on a loan can be no more than three percent of the loan amount.
HR1077, however, would weaken the consumer protections included in a QM by allowing lenders to charge higher fees and points than the three percent cap. The bill exempts from the cap compensation paid to mortgage brokers and loan officers (like yield spread premiums). Exempting these fees, specifically yield-spread premiums, could result in a highly unaffordable outcome for borrowers, particularly low-income borrowers. Yield spread premiums perpetuate the housing bubble incentive structure that encouraged lenders and their affiliates to put people into loans with higher interest rates than they could qualify for.
High-cost mortgages drained billions of dollars of wealth from Chicago’s low-wealth communities and communities of color. We cannot allow that to happen again.
Woodstock Institute and other consumer advocate organizations signed a letter to members of Congress explaining the dangers of this bill and urged them not to support it. Unfortunately for Illinoisans, Rep. Aaron Schock (R-18) and Rep. Mike Quigley (D-5) have both signed on as co-sponsors. Despite repeated contacts from our office, neither legislator has removed himself from the bill. The House Financial Services Committee, where Rep. Randy Hultgren (R-IL) and Rep. Bill Foster (D-IL) are members, is likely to hold a hearing to debate the bill in the coming weeks. Additionally, HR1077 could be going through the mark-up process in the House Financial Services committee in the next few weeks. We urge you to call the offices of Reps. Hultgren and Foster to convey your concern about the bill.
Contact information is below:
Rep. Bill Foster: (202) 225-3515 (HFS committee member)
Rep. Randy Hultgren: (202) 225-2976 (HFS committee member)
Let these representatives know that:
- Qualified mortgages, as defined by the CFPB, protect borrowers because they promote safe, sound, and affordable loans. QM loans are restricted from having risky features such as high origination fees, prepayment penalties, interest-only payments, and yield-spread premiums
- HR1077 weakens QM provisions that ensure that loans will be affordable. The bill creates exceptions for yield-spread premiums and other fees and will result in borrower confusion and more expensive loans. It will create new incentives for abusive lending while still providing lenders with the legal safe harbor protections associated with QM loans.
Urge our Illinois legislators to vote against HR1077 today! Please drop me a line at firstname.lastname@example.org or 312-368-0310 to let us know how your call went.