Mortgage 'Points and Fees' Bill Becomes Unexpected Flash Point

WASHINGTON — Despite a strong industry push, a bill to amend the Consumer Financial Protection Bureau's "qualified mortgage" rule is facing an uphill battle to enactment this year.

The House passed the Mortgage Choice Act earlier this week with bipartisan support, but it came under fire Thursday from critics in the Senate Banking Committee, suggesting it could have trouble clearing the chamber.

The bill would exempt title insurance fees paid to lender affiliates from counting toward a 3% "points and fees" cap under the QM rule. Fees from title insurance companies that are not affiliated with the lender are currently exempted from the cap.

Democrats said it was critical to keep the rule intact.

"The 3% cap is an important step toward fixing the broken, non-competitive market for title insurance," said Sen. Elizabeth Warren, D-Mass., of the affiliate relationships. The House bill "is about preserving a cash cow for the mortgage industry and not about access to credit."

Warren is not alone. The White House threatened to veto the provision in a Statement of Administration Policy issued Monday, which could spur more Senate lawmakers to speak out should the bill come up for a vote.

The legislation passed the House 286-140 on Tuesday after a lengthy debate, and ultimately won the support of 45 Democrats. Another 139 Democrats voted against the measure.

The brewing fight over the bill has surprised some observers, who didn't necessarily see the provision becoming such a hot-button issue.

"It's like Gettysburg — no one expected to meet here, or have this turn into a giant battle, but here we are," said Rob Zimmer, principal at consultancy TVDC.

President Obama vowed in his State of the Union earlier this year not to approve any legislation that would roll back the Dodd-Frank Act, and many Senate Democrats remain jilted after a controversial swaps measure was included in a must-pass spending bill in December, with backing from the White House and top bankers.

Sen. Richard Shelby, R-Ala., chairman of the Banking Committee, said the panel is still looking into the measure, along with other housing provisions, ahead of a panel vote on regulatory relief legislation scheduled for May 14.

"We haven't proposed anything yet," Shelby told reporters after the hearing. "We'll look at it and see what it is. We're not worried at this point whether the president or somebody at the White House says, 'we recommend a veto.'"

Housing advocates have also spoken out against the bill, arguing that it would erode consumer protections put in place by the CFPB.

"Affiliates were a big part of what was going on in the run-up to the crisis — there were kickbacks and upselling rampant throughout the system, which ends up making a mortgage more expensive than it has to be, and it's anticompetitive," Julia Gordon, director of housing finance and policy at the Center for American Progress, said at the hearing.

She added: "Dodd-Frank could have made the choice to simply ban these affiliate arrangements. It did not do that, it just said, if you want to be in that super safe category of QM mortgages, you can't go above this points and fees cap, which seems to me to be a fairly minimal and very reasonable way of enabling affiliate relationships to continue."

Still, industry groups aren't expected to give up the fight easily after spending several years pushing for the change to the "points and fees" cap. Industry witnesses representing the National Association of Home Builders, the Mortgage Bankers Association and the National Association of Realtors all spoke in favor of the provision on Thursday.

"I had an affiliate title company for about six or eight years. One of the reasons we had the title insurance company is because we felt like we could provide better service to our mortgage companies, particularly in a refinance scenario, where I could actually meet or beat the cost of a competitor," said J. David Motley, President of Colonial Savings, who spoke on behalf of the MBA.