Dismantling Dodd-Frank, High Cost Loan Test Changes

Last year Congress failed to pass a sweeping bill repealing much of the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act.   It appears they have now adopted a strategy to take smaller bites from the 2009 law enacted in response to the financial crisis.

Last week, the Republican majority succeeded in getting a much less ambitious bill through the House.  HR 1153, the Mortgage Choice Act, is now awaiting action in the Senate after a 280 to 131 roll-call vote in the lower chamber. To call the new bill less ambitious is an understatement.  HR 10, the Financial Choice Act, introduced in February 2017, attempted to eliminate many of Dodd-Franks' "too big to fail" provisions, change the name and the structure of the Consumer Financial Protection Agency, alter the rule-making authority and processes of CFPB and other regulatory agencies, and repeal the small and women- or minority-owned business data collection requirements Dodd Frank had added to the Equal Credit Opportunity Act. The Financial Choice Act passed the House but did not receive a single Democratic vote in the Senate.

H.R. 1153, sponsored by Representative Bill Huizenga (R-MI) appears to repeat only one portion of HR 10.   It revises the definition of "points and fees" for purposes of the Regulation Z ability to repay/qualified mortgage requirements and high-cost mortgage loan requirements. Under the legislation currently in effect, charges for title examinations, title insurance, and other such services are excluded in the calculation of points and fees to determine if a loan is "high cost" only when the title company is not an affiliate of the lender.  Amounts that are escrowed for taxes are also excluded.  Under the proposed law, escrowed amounts for insurance would also be excluded as would title and settlement fees are excluded regardless of any affiliation with the creditor.

There are three tests a loan must pass to be exempt from the high cost loan rules. In addition to the points and fees tests, there is an APR test and a prepayment penalty test. The points and fees test is the only one where the threshold amount of the loan (currently around $20,300) is adjusted annually.

The smaller footprint of the Mortgage Choice Act may mean it will pass the Senate.  It had bi-partisan sponsorship in the House, with five Democrats among the 17 cosponsors.  Fifty-one Democrats voted in the affirmative on the House floor.