On May 4, 2017, the House Financial Services Committee moved the Financial CHOICE Act to the House floor with a 34-26 party-line vote. We anticipate that the House will approve the bill in the coming weeks, but clearing the Senate is more uncertain because Democratic support will be necessary.
While the bill is generally viewed as a long-shot to move through the Senate, Republican lawmakers remain optimistic about the bill’s prospects. In light of the potential for drastic changes to the regulatory and supervisory requirements imposed by the Dodd-Frank Act, we wanted to take a closer look at what the Financial CHOICE Act could mean for financial institutions – starting with the mortgage industry.
The Financial CHOICE Act contains various provisions relating to mortgage origination and servicing. The mortgage would undergo significant changes if the bill were passed in its current form. We discuss some of the more significant changes below:
S.A.F.E. Act Transitional Authority
Subject to certain conditions, the Financial CHOICE Act would establish temporary authority for a loan originator to continue originating loans when 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 authority would begin on the date that the loan originator submits an application for a license and continue until the earlier of 1) the date the application is withdrawn, denied or granted, or 2) the date that is 120 days after the application is submitted, if the application is listed as incomplete in the NMLSR.
Points and Fees
The Financial CHOICE Act would revise the definition of “points and fees” for purposes of Regulation Z’s ATR/QM requirements and high-cost mortgage loan requirements 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 Financial CHOICE 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.
Ability to Repay/Qualified Mortgage
The Financial CHOICE Act proposes to create a safe harbor against lawsuits for failure to comply with the Regulation Z’s ability-to-repay requirements for mortgage loans made by depository institutions that comply with certain prepayment penalty limitations and will be held in portfolio for the life of the loan. 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 from the time of loan origination.
Higher-Priced Mortgage Loan Escrow Requirements
The Financial CHOICE Act would make certain small creditors exempt 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
The Financial CHOICE Act proposes increasing the limit on loans serviced to be considered a small servicer exempt from various servicing requirement from 5,000 serviced by the servicer and its affiliates to 20,000 loans serviced annually.
HMDA Reporting Threshold
The CFPB adopted a revised Home Mortgage Disclosure Act (HMDA) rule which 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 Financial CHOICE Act 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 Financial CHOICE Act would require the Comptroller General of the United States to conduct a study regarding the scope of loan and consumer data that must be collected and reported and submit a report to Congress. In addition, reporting institutions would not be 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.
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