The Financial CHOICE Act, now closer to passage, would significantly impact the mortgage industry

by Ballard Spahr LLP
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On May 4 H.R. 10, the Financial CHOICE Act (the Act) introduced by House Financial Services Committee Chairman Jeb Hensarling, R-Texas, obtained enough votes to move the bill on to the House of Representatives floor.  The Act seeks to rollback or modify many of the regulatory and supervisory requirements imposed by the Dodd-Frank Act.

On May 8, my colleague, Barbara Mishkin blogged about provisions of the bill that would overhaul the CFPB’s structure and authority, and a variety of other provisions.  I will blog about the provisions in the bill that relate to mortgage origination and servicing.  The passage of the bill in its current form would result in significant changes for that industry.  The most significant changes are addressed below.

S.A.F.E. Act Transitional Authority.  If certain conditions are met, the Act would create, under the S.A.F.E. Mortgage Licensing Act, temporary authority for a loan originator to continue to originate loans in cases in which (1) a registered loan originator moves from a depository institution to a non-depository institution mortgage lender and (2) a licensed loan originator moves from a non-depository institution in one state to another non-depository institution in a different state.  The temporary period would run from the date the loan originator submits an application for a license until the earlier of the date (1) the application is withdrawn, denied or granted, or (2) that is 120 days after submission of the application, if the application is listed in the Nationwide Mortgage Licensing System and Registry (NMLSR) as being incomplete.

Points and Fees.  The definition of points and fees for purposes of the Regulation Z ability to repay/qualified mortgage requirements and high-cost mortgage loan requirements would be revised to exclude charges for title examinations, title insurance or similar purposes, regardless of whether the title company is affiliated with the creditor.  Currently, for such charges to be excluded from points and fees, the title company must not be an affiliate of the creditor.  The Act also would make a conforming change to exclude escrowed amounts for insurance from points and fees.  Currently, escrowed amounts for taxes are excluded from points and fees.  Both changes were included in bills introduced in prior years that never were enacted.

Ability to Repay/Qualified Mortgage.  The Act would create a safe harbor against lawsuits for failure to comply with the Regulation Z ability to repay requirements for mortgage loans made by depository institutions that are held in portfolio from the time of origination and comply with a limitation on prepayment penalties.  Mortgage originators working for depository institutions would have a safe harbor from a related anti-steering provision if they informed the consumer that the institution intended to hold the loan in portfolio for the life of the loan.

Higher-Priced Mortgage Loan Escrow Requirements.  The Act would exempt certain small creditors from the escrow account requirements under Regulation Z for higher-priced mortgage loans if the small creditor held the loan in portfolio for at least three years after origination.  A creditor would qualify for the exemption if it has consolidated assets of $10 billion or less.

Small Servicer Exemption.  For purposes of the exemption for small servicers from various servicing requirements, the Act would require an increase in the limit on loans serviced to be considered a small servicer.  Currently the limit is 5,000 loans serviced by the servicer and its affiliates, and the servicer and its affiliates must be the creditor or assignee of all of the serviced loans.  The Act would require the adoption of a limit of 20,000 loans serviced annually.  The Act does not expressly refer to loans serviced by affiliates or whether the servicer and its affiliates must be the creditor or assignee of the loans.

HMDA Reporting Threshold.  The revised Home Mortgage Disclosure Act (HMDA) rule adopted by the CFPB establishes uniform volume thresholds to be a reporting institution at 25 closed-end mortgage loans in each of the prior two years or 100 open-end lines of credit in each of the prior two years.  The uniform thresholds will become effective January 1, 2018, although the 25 loan threshold for closed-end mortgage loans became effective January 1, 2017 for depository institutions.  The bill would increase the thresholds to 100 closed-end mortgage loans in each of the prior two years and 200 open-end lines of credit for each of the prior two years.

HMDA Information Privacy.  The revised HMDA rule adopted by the CFPB significantly expands the data on the consumer and loan that must be collected and reported, including the credit score and age of the consumer.  The mortgage industry has raised concerns about how much information the CFPB will make public under HMDA, as parties can use the publicly released data as well as other publicly available data to determine the identity of the consumer.  The CFPB is still assessing what elements of the reported data it will release to the public.  The Act would require the Comptroller General of the United States to study the issue and submit a report to Congress.  The Act also would provide that reporting institutions are not required to make available to the public any information that was not required to be made available under HMDA immediately prior to the adoption of the Dodd-Frank Act.  This aspect of the Act does not address that, under the revised HMDA rule, the CFPB, and not each reporting institution, would make reported information available to the public.

It is likely that the H.R. 10 as currently structured will not be adopted, but various provisions may find their way into law.  We will continue to monitor developments.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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