[Congressional Record Volume 160, Number 92 (Friday, June 13, 2014)]
[Extensions of Remarks]
[Pages E983-E985]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                      MORTGAGE CHOICE ACT OF 2013

                                 ______
                                 

                               speech of

                           HON. KEITH ELLISON

                              of minnesota

                    in the house of representatives

                          Monday, June 9, 2014

  Mr. ELLISON. Mr. Speaker, as I stated during the hearing and the mark 
up on The Mortgage Choice Act of 2013 (H.R. 3211), there are serious 
concerns about steering consumers into buying title insurance with 
hidden commissions and inflated costs.
  I bought two homes in my life. Like most homebuyers, I was asked to 
sign a bunch of papers with lots of fees such as origination charges, 
appraisal fees, scoring fees, recording charges, tax service fee and 
title insurance. Like most consumers, I chose my title insurance 
provider based on referral: I did not comparison shop.
  For most of us, title insurance is the most expensive of the closing 
cost fees--sometimes running in the thousands of dollars. These fees 
are poorly understood by homebuyers. This can lead to paying higher 
fees than is necessary or appropriate.
  When Congress passed the Dodd-Frank Wall Street Reform and Consumer 
Protection Act, we required the newly created Consumer Financial 
Protection Bureau (CFPB) to do a better job at protecting consumers 
when buying a home.
  We know that the housing finance system had too much predatory and 
discriminatory lending. African Americans and Latinos were frequently 
charged much higher interest rates than they qualified for. Homeowners 
were refinanced into high fee and interest rates they could not afford. 
The result was more than five million foreclosures and a colossal loss 
of wealth.
  In response to the new law, the CFPB wrote rules to protect people 
buying homes from products which would strip their wealth. One of those 
rules defined a Qualified Mortgage (QM) standard which was established 
in Dodd-Frank. As part of that QM standard, the CFPB established a 
``points and fees'' bright line limit for mortgages that qualified 
under the Ability to Repay provision.
  The CFPB established a limit on ``points and fees''--which account 
for a loan's origination costs--that exceed 3 percent of the loan 
amount--although it can be up to 8 percent for lower cost homes. 
Because of concerns that the affiliated title insurance system was 
leading to higher costs for borrowers in a market based on reverse 
competition, the CFPB wisely chose to require title insurance charges 
from affiliated title agents be within the points and fees cap.
  H.R. 3211 reverses the CFPB's decision.
  By excluding affiliated title insurance firms from within the points 
and fees cap, H.R. 3211 restores an incentive to overcharge homebuyers.
  We know how hard it is to get people into homes. Homebuyers need to 
save thousands of dollars for a downpayment. So why should we make it 
easier to let them get overcharged as much as a thousand or more 
dollars on title insurance? Some say that as much as half or more of a 
title insurance premium goes to the referral agent. Why would we want 
to preserve this practice of overpricing title insurance to fund 
referral commissions?
  At the Financial Services hearing that included this bill, I 
requested that we hear from independent land title agents as well as 
from groups like the Consumer Federation of America, the Center for 
Responsible Lending, Americans for Financial Reform and its 100 
affiliates and the AFL-CIO.
  I requested that the National Association of Independent Land Title 
Agents be invited to testify. I have heard concerns directly from title 
agents in my state that some referral sources ask to share ownership of 
their business. Since title insurance is based on referrals, when 
realtors, homebuilders and mortgage brokers refuse to provide referrals 
to a title agent firm, the firm may not be able to survive financially. 
Unfortunately, these independent unaffiliated title agents were not 
invited to testify nor was there another hearing on the bill.
  Many organizations opposed the bill including the AFL-CIO, Alliance 
for a Just Society, Americans for Financial Reform, Center for Economic 
Justice, Center for Responsible Lending, Connecticut Fair Housing 
Center, Consumer Action, Consumer Federation of America, Consumers 
Union, Empire Justice Center, Home Defenders League, The Leadership 
Conference on Civil and Human Rights, NAACP, National Association of 
Consumer Advocates, National Association of Independent Land Title 
Agents, National Consumer Law Center (on behalf of its low income 
clients), National Council of La Raza, National Fair Housing Alliance, 
New Economic Project, Public Citizen, Woodstock Institute and Center 
for Responsible Lending.
  These concerns about hidden referral commissions are not 
hypothetical. Last month, the Consumer Financial Protection Bureau 
(CFPB) fined RealtySouth, the largest real estate firm in Alabama for 
violations of the Real Estate Settlement and Practices Act (RESPA). 
RealtySouth improperly steered consumers to its affiliated firm, 
TitleSouth LLC. In addition, The CFPB has taken action against Borders 
& Borders PLC in Kentucky for funneling kickbacks to shell companies. 
In June, the CFPB fined Stonebridge Title Services in New Jersey for 
paying illegal kickbacks to referral sources.
  Some who support H.R. 3211 say there are some fixed costs in lending 
that could result in lower valued mortgages to need to pay loans higher 
than the Qualified Mortgage guideline of points and fees established by 
smaller loans. However, the Consumer Financial Protection Bureau 
already provided for flexible definitions based upon the amount of a 
borrower's mortgage:
  3 percentage cap on a loan balance at $100,000 or greater,
  5 percentage cap on a loan balance from $20,000.00 to $60,000, or
  8 percentage cap on loan balances of less than $12,500 \i\.
  Since the average mortgage origination fees are below one percent 
according to the Center for Responsible Lending, the caps set by the QM 
are appropriate. I have not seen any compelling evidence that shows 
that lenders will not make loans if the title premiums charged by their 
affiliates are included in the points and fees cap. Lenders are free to 
make loans outside the ability to repay rules as well.
  I have also heard the proponents of H.R. 3211 arguing that the 
availability of affiliate service providers helps reduce the overall 
cost of obtaining a mortgage loan. I question their evidence. The 2010 
Harris Interactive study paid by the National Association of Realtors 
is suspect. In that study, more than 70 percent of buyers ``did not 
know'' what an affiliate service provider provided or what benefit it 
allegedly gave.
  By contrast, in 2013, The National Association of Independent Land 
Title Agents (NAILTA) commissioned the first-ever national settlement 
preference survey of American real estate consumers.\ii\ More than 900 
consumers participated in the nationwide survey. The results include:
  93 percent of American real estate consumers surveyed said it was 
important that title insurance agents remain a neutral third party in 
the performance of title insurance-related services.
  62 percent of American real estate consumers surveyed said that a 
title agency cannot remain objective if it is partially owned by a 
bank, real estate firm, mortgage company or homebuilder.
  Only 1 percent of American real estate consumers surveyed prefer a 
``one stop shop''.
  For all the efficiencies that proponents assert existed prior to this 
new rule that provided a disincentive to refer homebuyers to 
controlled/affiliated title firms, settlement costs--exclusive of 
inflation--continue to rise. I believe the CFPB's rule could actually 
lower title insurance premiums and increase homeownership for 
Americans.
  I have concerns about a market where people assert that half or more 
the cost of the product is a referral fee unlinked to the product 
itself. Consumers and independent title insurance agents say that title 
insurance premiums can provide renumeration to the referral source 
based on the capture rate such as lower desk rental fees, bonuses, 
gifts or higher commissions. This should not be permitted.
  I urge Members to stand with homebuyers who want to understand all 
the fees they are charged.
  I urge Members to support a market free of pressures for referral 
commissions.
  I urge Members to vote no on H.R. 3211.


                                endnotes

       i http://files.consumerfinance.gov/f/201401_ 
     cfpb_ atr_qm_ small-entity-compliance-guide.pdf
       ii http://origin.library.constantcontact.com/
download/get/file/1102880907824-107/Executive+Summary+10-17-
2013.pdf

[[Page E984]]

                                                        Center for


                                          Responsible Lending,

                                                     June 9, 2013.
       Dear Member of Congress: We are writing to urge you to 
     oppose H.R. 3211. This bill reintroduces some of the higher 
     fees borrowers faced in the lead up to the mortgage crisis; 
     fees that the new mortgage rules were designed to prevent. 
     Specifically, this bill creates a loophole that would allow 
     loans with higher costs to the borrower to improperly meet 
     the Qualified Mortgage (QM) standard established in the Dodd-
     Frank Wall Street Reform and Consumer Protection Act. 
     Congress should refrain from weakening the QM standard and 
     reject this bill.
       H.R. 3211 would allow many more risky, high-cost loans to 
     qualify as QM loans by creating exceptions to the points and 
     fees threshold. These exceptions would exclude fees paid to 
     certain title companies affiliated with the lender. The 
     points and fees definition is designed to include all 
     compensation received by the lender. It is a reasonable 
     standard that provides basic protections for homebuyers.
       The title insurance market is a broken market. In 2007, a 
     GAO report concluded that borrowers ``have little or no 
     influence over the price of title insurance but have little 
     choice but to purchase it.'' As a result, the fees are 
     grossly inflated--recent studies have found that between 5 
     and 11 cents is paid out in claims for each $1 of premiums. 
     Almost the entirety of a title insurance premium 
     (approximately 70%) goes to commissions, not insurance 
     coverage. In contrast, loss ratios for health insurance are 
     minimally 80% and ratios for auto insurance fluctuate between 
     50% and 70%. Borrowers already pay inflated title insurance 
     costs. Including affiliated title insurance fees in the QM 
     defined points and fees cap will not solve all the problems 
     in the market but the rule provides important market pressure 
     to control costs.
       The current QM protections represent an appropriate step to 
     directly address recent problems for borrowers without 
     impacting access to credit. Creating a title insurance 
     loophole in the statute would eliminate one important 
     protection to keep costs to borrowers from escalating 
     further.
       We welcome the opportunity to engage in a discussion for a 
     comprehensive fix to the flaws in the current title insurance 
     market. However, incentivizing an already overpriced market 
     to further raise rates for borrowers is no solution.
       The Center for Responsible Lending urges Congress to reject 
     H.R. 3211--which will neither benefit consumers nor expand 
     access to credit.
           Sincerely,
                                               Kenneth W. Edwards,
     VP, Federal Affairs.
                                  ____

                                      National Association for the


                                Advancement of Colored People,

                                     Washington, DC, June 9, 2014.
     Re NAACP Strong Opposition to H.R. 3211, the Mortgage Choice 
         Act of 2013

     Members,
     House of Representatives,
     Washington, DC.
       Dear Representative: On behalf of the NAACP, our nation's 
     oldest, largest and most widely-recognized grassroots-based 
     civil rights organization, I strongly urge you to oppose H.R. 
     3211, the Mortgage Choice Act of 2013, which is scheduled to 
     come before you under suspension of the rules later today. 
     This ill-conceived legislation would reopen the door to the 
     higher fees borrowers faced in the lead-up to the recent 
     mortgage crisis; higher fees, which for decades, were sadly 
     targeted at specific demographics including African Americans 
     and other racial and ethnic minority homebuyers. As a result, 
     communities of color are still suffering disproportionately 
     from the foreclosure crisis. On behalf of the constituency 
     served and represented by the NAACP, I urge you in the 
     strongest terms possible to vote against H.R. 3211 and to be 
     reminded by our nation's past experiences and not to create 
     the types of incentives to predatory lenders that will repeat 
     the lending abuses which led to the ruination of so many 
     families.
       H.R. 3211 would weaken the consumer protections of 
     Qualified Mortgage loans as established by the Dodd-Frank 
     Wall Street Reform and Consumer Protection Act by legislating 
     exceptions to the 3 percent points and fees threshold. These 
     exceptions include exempting title insurance paid to a 
     company affiliated with a lender from counting toward the 3 
     percent cap. The approach taken in this bill leaves the door 
     open for abuses that were typical in the recent subprime 
     crisis. Our specific concerns about mortgage insurance are 
     based on the fact that lenders have historically steered 
     borrowers to overpriced title insurance. Consumers do not, 
     and essentially cannot, shop for this product, so this is a 
     broken market where competition does not function to drive 
     down prices. One result of this practice is that title 
     insurance prices are vastly inflated. The opaque pricing and 
     sales system for title insurance leaves borrowers without 
     information or leverage to get a better price.
       Again, I urge you in the strongest terms possible, to 
     oppose H.R. 3211, the Mortgage Choice Act of 2013, and to 
     vote against it if it does indeed come before you under a 
     suspension of the rules later today. Many of our communities 
     across our nation are still suffering from the foreclosure 
     crisis which continues to decimate too many American 
     families. We need to learn from and correct our past 
     mistakes, not open the door to repeating them. Thank you for 
     considering the concerns of the NAACP. Should you have any 
     questions or comments on the NAACP position, please feel free 
     to contact me at (202) 463-2940.
           Sincerely,
     Hilary O. Shelton,
       Director, NAACP Washington Bureau & Senior Vice President 
     for Policy and Advocacy.
                                  ____

                                                 October 17, 2013.
       Dear Member of Congress, we are writing to urge you to 
     oppose H.R. 3211 and any Senate companion bill, which reopens 
     the door to the higher fees borrowers faced in the lead up to 
     the mortgage crisis. Specifically, this bill creates 
     loopholes that would allow loans with higher costs to 
     improperly meet the Qualified Mortgage (QM) standard 
     established in the Dodd-Frank Wall Street Reform and Consumer 
     Protection Act. Congress should refrain from weakening the 
     Qualified Mortgage standard and reject this bill. Due to a 
     broken market, title insurance fees are grossly inflated--
     less than 10 cents is paid out in claims for each $1 of 
     premiums, and title insurance adds $1,000 or more to the 
     upfront costs of many mortgages. In other words, almost the 
     entirety of a title insurance premium goes to commissions, 
     not insurance coverage. The QM protections represent 
     appropriate steps to directly address recent problems without 
     impacting access to credit.
       The mortgage reforms in Title XIV of Dodd-Frank were put in 
     place as a direct response to the deceptive and unsound 
     mortgage lending practices and products that put borrowers 
     into risky, high-cost loans they could not understand or 
     afford. Many of these inflated loans were made in communities 
     of color and low-income communities, where the effects of the 
     recent economic collapse are ongoing. The Ability to Repay 
     provision requires all lenders to reasonably determine 
     whether a mortgage is affordable for the borrower. Lenders 
     can demonstrate their compliance with the Ability to Repay 
     requirement by originating loans that meet the bright line 
     tests in the Qualified Mortgage definition. One such bright 
     line is a limit on ``points and fees''--which account for a 
     loan's origination costs--that exceed 3 percent of the loan 
     amount. This borrower protection prevents loans with more 
     expensive origination costs from gaining QM status.
       H.R. 3211 would weaken the consumer protections of QM loans 
     by legislating exceptions to the 3 percent points and fees 
     threshold. These exceptions include exempting title insurance 
     paid to a company affiliated with a lender from counting 
     toward the 3 percent cap. The approach taken in this bill, 
     which is misleadingly named the Mortgage Choice Act, leaves 
     the door open for abuses that were typical in the recent 
     subprime crisis. During the subprime lending boom, borrowers 
     often paid excessive origination costs; Dodd-Frank's 
     Qualified Mortgage provisions aim at restoring a fair market.
       This bill would undermine those rules just as they are 
     about to take effect. Congress passed Dodd-Frank and the 
     Bureau, as directed, has written regulations for Qualified 
     Mortgages and the Ability to Repay requirements. Plans for 
     implementation of the new rules are already underway for the 
     January effective date. Congress should not now second guess 
     a two-year rulemaking process with thoughtful input from a 
     variety of stakeholders with hasty passage of a bill to 
     undermine the protections put in place to prevent the next 
     housing crisis.
       There are a number of specific features of the title 
     insurance market which add to our concerns about H.R. 3211
       Lenders steer borrowers to overpriced title insurance. 
     Borrowers are responsible for paying title insurance costs, 
     but the price for this product is agreed upon between the 
     lender and the title insurance company. Consumers do not, and 
     essentially cannot, shop for this product, so this is a 
     broken market where competition does not function to drive 
     down prices. The incentives to increase the costs of title 
     insurance paid by borrowers are enhanced when lenders are 
     coordinating with their own affiliates that provide title 
     insurance.
       Title insurance prices are vastly inflated. The opaque 
     pricing and sales system for title insurance leaves borrowers 
     without information or leverage to get a better price. As a 
     result, higher prices can be charged with most of the 
     insurance fee going to the sales agent, not to provide 
     coverage for losses. See attached Chart from a GAO study on 
     the title insurance market.
       States don't adequately regulate the market. The ``file and 
     use'' approach employed by many states allows insurers and 
     lenders to push prices up at their own discretion, filing fee 
     hike requests with regulators and then using them with 
     homeowners. There is minimal evaluation as to the 
     appropriateness of fee increases.
       Households and communities across the country have yet to 
     recover from the recent subprime lending crisis, and Congress 
     should learn from the past instead of creating incentives to 
     repeat these lending abuses. As a result, the undersigned 
     organizations oppose H.R. 3211 and ask that you not support 
     this bill.
           Sincerely,
       AFL-CIO, Alliance for a Just Society, Americans for 
     Financial Reform, Center for

[[Page E985]]

     Economic Justice, Center for Responsible Lending, Connecticut 
     Fair Housing Center, Consumer Action, Consumer Federation of 
     America, Consumers Union, Empire Justice Center.
       Home Defenders League, The Leadership Conference on Civil 
     and Human Rights, NAACP, National Association of Consumer 
     Advocates, National Consumer Law Center (on behalf of its low 
     income clients), National Council of La Raza, National Fair 
     Housing Alliance, New Economic Project, Public Citizen, 
     Woodstock Institute.

                          ____________________