[House Report 115-1024]
[From the U.S. Government Publishing Office]


115th Congress   }                                   {       Report
                        HOUSE OF REPRESENTATIVES
 2d Session      }                                   {       115-1024

======================================================================



 
                     MORTGAGE FAIRNESS ACT OF 2017

                                _______
                                

 November 14, 2018.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed

                                _______
                                

Mr. Hensarling, from the Committee on Financial Services, submitted the 
                               following

                              R E P O R T

                             together with

                             MINORITY VIEWS

                        [To accompany H.R. 2570]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 2570) to amend the Truth in Lending Act to 
clarify that the points and fees in connection with a mortgage 
loan do not include certain compensation amounts already taken 
into account in setting the interest rate on such loan, and for 
other purposes, having considered the same, report favorably 
thereon without amendment and recommend that the bill do pass.

                          Purpose and Summary

    Introduced by Representative Bill Posey on May 19, 2017, 
H.R. 2570, the ``Mortgage Fairness Act'' amends the Truth in 
Lending Act to revise the definition of ``points and fees'' 
under a high-cost mortgage.

                  Background and Need for Legislation

    On January 10, 2013, the Bureau of Consumer Financial 
Protection (BCFP) issued a final rule to implement sections 
1411 and 1412 as well as section 1414 of the Dodd-Frank Wall 
Street Reform and Consumer Financial Protection Act of 2010 
[P.L. 111-203], which limits prepayment penalties. The final 
rule, also known as the ``QM'' Rule provides lenders with a 
safe harbor for loans that satisfy the definition of a 
``Qualified Mortgage'' and are not ``higher-priced.'' A 
mortgage will be considered a Qualified Mortgage if it: (1) has 
regular periodic payments that are substantially equal, except 
for the payment changes on an adjustable rate mortgage or a 
step-rate loan; (2) does not permit negative amortization; (3) 
does not have a balloon payment; (4) does not exceed 30 years; 
and (5) does not have total points and fees exceeding 3 percent 
of the total loan amount.
    Additionally, when underwriting a mortgage, a lender must: 
(1) take into account mortgage-related obligations using the 
maximum interest rate that may apply during the first five 
years and periodic payments of principal and interest that will 
be repaid; (2) consider and verify the consumer's current or 
reasonably expected income or assets, other than the value of 
the dwelling, and the consumer's current debt obligations, 
alimony and child support; and (3) determine that the 
consumer's debt-to-income ratio does not exceed 43 percent, as 
calculated using Federal Housing Administration (FHA) 
guidelines. The requirements in the ability-to-repay rule went 
into effect on January 10, 2014.
    The final QM Rule sets limits on points and fees for 
Qualified Mortgages. It provides that a loan cannot be treated 
as a Qualified Mortgage unless its total points and fees do not 
exceed the certain limits and all dollar and loan amounts are 
indexed for inflation.
    The QM Rule stipulates that the following costs, known at 
or before consummation, are included in the points and fees 
cap:
     All items included in the finance charge, with the 
following exceptions:
             Interest;
             The time-price differential;
             Federal or state government-sponsored mortgage 
        insurance premiums;
             Private mortgage insurance;
             Bona fide third-party charges not retained by the 
        lender, loan originator or an affiliate of either; and
             Bona fide discount points.
     Direct or indirect loan originator compensation, 
including compensation paid by the consumer to mortgage brokers 
and compensation paid by the lender to mortgage brokers and 
retail loan officers. Salaries are excluded.
     Real estate-related fees, including fees for title 
examination, abstract of a title, title insurance, property 
survey, document preparation, notaries, credit reports, 
appraisals, inspections, flood hazard determinations, and non-
tax related amounts paid into escrow. Any of these charges may 
be excluded from the points and fees calculation if they are 
reasonable, if the lender receives no direct or indirect 
compensation in connection with the charge, or if the charge is 
not paid to an affiliate of the lender.
     Premiums for credit insurance; credit property 
insurance; other life, accident, health or loss-of-income 
insurance where the lender is beneficiary; or debt cancellation 
or suspension coverage payments.
     Maximum prepayment penalty.
     Prepayment penalty paid in a refinance.
     Fees charged to consumers to recover the costs of 
loan-level price adjustments (LLPAs) imposed by secondary 
market purchasers of loans, including the GSEs.
    Unfortunately, these methods double-count the brokerage fee 
and generate a distorted picture of the overall cost of the 
loan. The brokerage fee may be ``set as a percentage of the 
loan amount (1 to 2.5 percent is customary), and is paid either 
by the borrower or the lender. Brokers are required to disclose 
their fees upfront, and they are not permitted to earn any more 
than the disclosed amount . . . . If due from the borrower, it 
could either be rolled into the loan amount or paid upfront by 
check.''\1\ In other words, mortgage brokers may be compensated 
in a lump sum or in the form of a higher interest rate on the 
loan. In the latter case, the broker's origination fees are 
reflected in the higher interest rate on the loan. However, the 
points-and-fees calculation includes a line item for indirect 
loan origination compensation, even if it is already priced 
into the interest rate. In effect, the QM rule double-counts 
the mortgage brokerage fee.
---------------------------------------------------------------------------
    \1\Lisa Prevost, Choosing Between Mortgage Broker and Bank, N.Y. 
Times, November 29, 2013, http://www.nytimes.com/2013/12/01/realestate/
choosing-between-mortgage-broker-and-bank.html.
---------------------------------------------------------------------------
    The BCFP acknowledged this issue when it promulgated a rule 
amending Regulation Z, which implements the Truth in Lending 
Act (TILA). In its official interpretation of the rule, the 
BCFP noted that it was:

          ``particularly concerned about situations in which 
        the creditor pays compensation to a mortgage broker or 
        its own loan originator employees because there is no 
        simple way to determine whether the compensation is 
        paid from money the creditor collected from up-front 
        charges to the consumer (which would already be counted 
        against the points and fees thresholds) or from the 
        interest rate on the loan (which would not be counted 
        toward the thresholds).''\2\
---------------------------------------------------------------------------
    \2\ 78 Fed. Reg,. 35430, June 12, 2013. https://
www.federalregister.gov/d/2013-13173/p-9.

    However, the BCFP ultimately decided not to address the 
problem in full. Instead, the ``final rule retains an 
`additive' approach for calculating loan originator 
compensation paid by a creditor to a loan originator other than 
an employee of creditor.''\3\
---------------------------------------------------------------------------
    \3\ Id.
---------------------------------------------------------------------------
    As a result, many loans that would not otherwise be 
considered ``high cost'' exceed the 3 percent cap. The 
consequences are significant. Lenders are less likely to offer 
``high cost'' mortgages, or may make them available at higher 
rates due to heightened liability risks.
    While QM loans are given safe harbor against legal 
liability under the Ability to Repay rules, ``high cost'' 
mortgages receive only a rebuttable presumption of compliance. 
As the Congressional Research Service (CRS) has written:

        ``[w]hen a lender originates a mortgage that receives 
        QM status, it is presumed to have complied with the ATR 
        requirement, which consequently reduces the lender's 
        potential legal liability of its residential mortgage 
        lending activities. . . .The definition of a QM, 
        therefore, is important to a lender seeking to minimize 
        its legal risk of its residential mortgage lending 
        activities, specifically its compliance with the 
        statutory ATR requirement.''\4\
---------------------------------------------------------------------------
    \4\Sean M. Hoskins, An Analysis of Portfolio Lending and Qualified 
Mortgages, CRS, January 21, 2016, https://fas.org/sgp/crs/misc/
R44350.pdf (emphasis in original).

    This legislation would resolve the issues related to 
double-counting as points and fees, any compensation already 
priced into the interest rate, while also codify the BCFP's 
current practice of avoiding double-counting mortgage lender 
compensation to their own mortgage origination employees. 
Correcting the definitional error, H.R. 2570, will help to 
better serve consumers and serve as another step to restore 
healthy market competition that has been absent following the 
enactment of the Dodd-Frank Act.

                                Hearings

    The Subcommittee on Financial Institutions, held a hearing 
examining matters relating to H.R. 2570 on December 7, 2017.

                        Committee Consideration

    The Committee on Financial Services met in open session on 
July 24, 2018 and ordered H.R. 2570 to be reported favorably to 
the House without amendment by a recorded vote of 34 yeas to 22 
nays (recorded vote no. FC-199), a quorum being present.

                            Committee Votes

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto. The 
sole recorded vote was on a motion by Chairman Hensarling to 
report the bill favorably to the House without amendment. The 
motion was agreed to by a recorded vote of 34 yeas to 22 nays 
(Record vote no. FC-199), a quorum being present.




[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]









                      Committee Oversight Findings

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the findings and recommendations of 
the Committee based on oversight activities under clause 
2(b)(1) of rule X of the Rules of the House of Representatives, 
are incorporated in the descriptive portions of this report.

                    Performance Goals and Objectives

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the Committee states that H.R. 2570 
will resolve the issues related to double-counting as points 
and fees, any compensation already priced into the interest 
rate, while also codify the BCFP's current practice of avoiding 
double-counting mortgage lender compensation to their own 
mortgage origination employees, by correcting a definitional 
error.

   New Budget Authority, Entitlement Authority, and Tax Expenditures

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee adopts as its 
own the estimate of new budget authority, entitlement 
authority, or tax expenditures or revenues contained in the 
cost estimate prepared by the Director of the Congressional 
Budget Office pursuant to section 402 of the Congressional 
Budget Act of 1974.

                 Congressional Budget Office Estimates

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                Washington, DC, September 11, 2018.
Hon. Jeb Hensarling,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 2570, the Mortgage 
Fairness Act of 2017.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Stephen 
Rabent.
            Sincerely,
                                                Keith Hall,
                                                          Director.
    Enclosure.

H.R. 2570--Mortgage Fairness Act of 2017

    Under current law, a ``qualified mortgage'' is a type of 
loan that prohibits certain terms and features and offers 
additional legal protections to lenders who issue them. One of 
those features is that some costs that are incidental to the 
loan and that are paid by the borrower--for example, title 
insurance fees, guarantee fees, and service charges--cannot 
exceed 3 percent of the total loan amount. Lenders offering 
``high-cost mortgages'' (home mortgages with interest rates and 
fees that exceed certain thresholds) must make additional 
disclosures to borrowers and must comply with restrictions on 
the terms of those loans.
    H.R. 2570 would change what costs are included in the 
points and fees calculation used to determine if a loan is a 
qualified mortgage or a high-cost mortgage. The bill would 
exclude compensation paid by a consumer or creditor to an 
individual who is employed by or has a contract with the 
mortgage originator. The bill also would exclude compensation 
that was accounted for in setting the mortgage's interest rate 
but for which the consumer was not separately charged.
    Using information from the Consumer Financial Protection 
Bureau, CBO estimates that enacting H.R. 2570 would increase 
direct spending by less than $500,000 for the agency to issue a 
rule to implement the changes to the points and fees 
calculation.
    Because enacting H.R. 2570 would affect direct spending, 
pay-as-you-go procedures apply. Enacting the bill would not 
affect revenues.
    CBO estimates that enacting H.R. 2570 would not increase 
net direct spending or on-budget deficits in any of the four 
consecutive 10-year periods beginning in 2029.
    H.R. 2570 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act.
    The CBO staff contact for this estimate is Stephen Rabent. 
The estimate was reviewed by H. Samuel Papenfuss, Deputy 
Assistant Director for Budget Analysis.

                       Federal Mandates Statement

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995.
    The Committee has determined that the bill does not contain 
Federal mandates on the private sector. The Committee has 
determined that the bill does not impose a Federal 
intergovernmental mandate on State, local, or tribal 
governments.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                  Applicability to Legislative Branch

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of the section 
102(b)(3) of the Congressional Accountability Act.

                         Earmark Identification

    With respect to clause 9 of rule XXI of the Rules of the 
House of Representatives, the Committee has carefully reviewed 
the provisions of the bill and states that the provisions of 
the bill do not contain any congressional earmarks, limited tax 
benefits, or limited tariff benefits within the meaning of the 
rule.

                    Duplication of Federal Programs

    In compliance with clause 3(c)(5) of rule XIII of the Rules 
of the House of Representatives, the Committee states that no 
provision of the bill establishes or reauthorizes: (1) a 
program of the Federal Government known to be duplicative of 
another Federal program; (2) a program included in any report 
from the Government Accountability Office to Congress pursuant 
to section 21 of Public Law 111-139; or (3) a program related 
to a program identified in the most recent Catalog of Federal 
Domestic Assistance, published pursuant to the Federal Program 
Information Act (Pub. L. No. 95-220, as amended by Pub. L. No. 
98-169).

                   Disclosure of Directed Rulemaking

    Pursuant to section 3(i) of H. Res. 5, (115th Congress), 
the following statement is made concerning directed rule 
makings: The Committee estimates that the bill requires no 
directed rule makings within the meaning of such section.

             Section-by-Section Analysis of the Legislation


Section 1. Short title

    This section cites H.R. 2570 as the ``Mortgage Fairness Act 
of 2017''.

Section 2. Points and fees

    This section amends Section 103 of the Truth in Lending Act 
(15 U.S.C. 1602) by correcting existing definitional errors of 
what constitutes ``points and fees'' for a high cost mortgage.

         Changes in Existing Law Made by the Bill, as Reported

    In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, and existing law in which no 
change is proposed is shown in roman):

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, and existing law in which no 
change is proposed is shown in roman):

                SECTION 103 OF THE TRUTH IN LENDING ACT



           *       *       *       *       *       *       *
Sec. 103. Definitions and rules of construction

  (a) The definitions and rules of construction set forth in 
this section are applicable for the purposes of this title.
  (b) Bureau.--The term ``Bureau'' means the Bureau of Consumer 
Financial Protection.
  (c) The term ``Bureau'' refers to the Bureau of Governors of 
the Federal Reserve System.
  (d) The term ``organization'' means a corporation, government 
or governmental subdivision or agency, trust, estate, 
partnership, cooperative, or association.
  (e) The term ``person'' means a natural person or an 
organization.
  (f) The term ``credit'' means the right granted by a creditor 
to a debtor to defer payment of debt or to incur debt and defer 
its payment.
  (g) The term ``creditor'' refers only to a person who both 
(1) regularly extends, whether in connection with loans, sales 
of property or services, or otherwise, consumer credit which is 
payable by agreement in more than four installments or for 
which the payment of a finance charge is or may be required, 
and (2) is the person to whom the debt arising from the 
consumer credit transaction is initially payable on the face of 
the evidence of indebtedness or, if there is no such evidence 
of indebtedness, by agreement. Notwithstanding the preceding 
sentence, in the case of an open-end credit plan involving a 
credit card, the card issuer and any person who honors the 
credit card and offers a discount which is a finance charge are 
creditors. For the purpose of the requirements imposed under 
chapter 4 and sections 127(a)(5), 127(a)(6), 127(a)(7), 
127(b)(1), 127(b)(2), 127(b)(3), 127(b)(8), and 127(b)(10) of 
chapter 2 of this title, the term ``creditor'' shall also 
include card issuers whether or not the amount due is payable 
by agreement in more than four installments or the payment of a 
finance charge is or may be required, and the Bureau shall, by 
regulation, apply these requirements to such card issuers, to 
the extent appropriate, even though the requirements are by 
their terms applicable only to creditors offering open-end 
credit plans. Any person who originates 2 or more mortgages 
referred to in subsection (aa) in any 12-month period or any 
person who originates 1 or more such mortgages through a 
mortgage broker shall be considered to be a creditor for 
purposes of this title. The term ``creditor'' includes a 
private educational lender (as that term is defined in section 
140) for purposes of this title.
  (h) The term ``credit sale'' refers to any sale in which the 
seller is a creditor. The term includes any contract in the 
form of a bailment or lease if the bailee or lessee contracts 
to pay as compensation for use a sum substantially equivalent 
to or in excess of the aggregate value of the property and 
services involved and it is agreed that the bailee or lessee 
will become, or for no other or a nominal consideration has the 
option to become, the owner of the property upon full 
compliance with his obligations under the contract.
  (i) The adjective ``consumer'', used with reference to a 
credit transaction, characterizes the transaction as one in 
which the party to whom credit is offered or extended is a 
natural person, and the money, property, or services which are 
the subject of the transaction are primarily for personal, 
family, or household purposes.
  (j) The terms ``open end credit plan'' and ``open end 
consumer credit plan'' mean a plan under which the creditor 
reasonably contemplates repeated transactions, which prescribes 
the terms of such transactions, and which provides for a 
finance charge which may be computed from time to time on the 
outstanding unpaid balance. A credit plan or open end consumer 
credit plan which is an open end credit plan or open end 
consumer credit plan within the meaning of the preceding 
sentence is an open end credit plan or open end consumer credit 
plan even if credit information is verified from time to time.
  (k) The term ``adequate notice'', as used in section 133, 
means a printed notice to a cardholder which sets forth the 
pertinent facts clearly and conspicuously so that a person 
against whom it is to operate could reasonably be expected to 
have noticed it and understood its meaning. Such notice may be 
given to a cardholder by printing the notice on any credit 
card, or on each periodic statement of account, issued to the 
cardholder, or by any other means reasonably assuring the 
receipt thereof by the cardholder.
  (l) The term ``credit card'' means any card, plate, coupon 
book or other credit device existing for the purpose of 
obtaining money, property, labor, or services on credit.
  (m) The term ``accepted credit card'' means any credit card 
which the cardholder has requested and received or has signed 
or has used, or authorized another to use, for the purpose of 
obtaining money, property, labor, or services on credit.
  (n) The term ``cardholder'' means any person to whom a credit 
card is issued or any person who has agreed with the card 
issuer to pay obligations arising from the issuance of a credit 
card to another person.
  (o) The term ``card issuer'' means any person who issues a 
credit card, or the agent of such person with respect to such 
card.
  (p) The term ``unauthorized use'', as used in section 133, 
means a use of a credit card by a person other than the 
cardholder who does not have actual, implied, or apparent 
authority for such use and from which the cardholder receives 
no benefit.
  (q) The term ``discount'' as used in section 167 means a 
reduction made from the regular price. The term ``discount'' as 
used in section 167 shall not mean a surcharge.
  (r) The term ``surcharge'' as used in section 103 and section 
167 means any means of increasing the regular price to a 
cardholder which is not imposed upon customers paying by cash, 
check, or similar means.
  (s) The term ``State'' refers to any State, the Commonwealth 
of Puerto Rico, the District of Columbia, and any territory or 
possession of the United States.
  (t) The term ``agricultural purposes'' includes the 
production, harvest, exhibition, marketing, transportation, 
processing, or manufacture of agricultural products by a 
natural person who cultivates, plants, propagates, or nurtures 
those agricultural products, including but not limited to the 
acquisition of farmland, real property with a farm residence, 
and personal property and services used primarily in farming.
  (u) The term ``agricultural products'' includes agricultural, 
horticultural, viticultural, and dairy products, livestock, 
wildlife, poultry, bees, forest products, fish and shellfish, 
and any products thereof, including processed and manufactured 
products, and any and all products raised or produced on farms 
and any processed or manufactured products thereof.
  (v) The term ``material disclosures'' means the disclosure, 
as required by this title, of the annual percentage rate, the 
method of determining the finance charge and the balance upon 
which a finance charge will be imposed, the amount of the 
finance charge, the amount to be financed, the total of 
payments, the number and amount of payments, the due dates or 
periods of payments scheduled to repay the indebtedness, and 
the disclosures required by section 129(a).
  (w) The term ``dwelling'' means a residential structure or 
mobile home which contains one to four family housing units, or 
individual units of condominiums or cooperatives.
  (x) The term ``residential mortgage transaction'' means a 
transaction in which a mortgage, deed of trust, purchase money 
security interest arising under an installment sales contract, 
or equivalent consensual security interest is created or 
retained against the consumer's dwelling to finance the 
acquisition or initial construction of such dwelling.
  (y) As used in this section and section 167, the term 
``regular price'' means the tag or posted price charged for the 
property or service if a single price is tagged or posted, or 
the price charged for the property or service when payment is 
made by use of an open-end credit plan or a credit card if 
either (1) no price is tagged or posted, or (2) two prices are 
tagged or posted, one of which is charged when payment is made 
by use of an open-end credit plan or a credit card and the 
other when payment is made by use of cash, check, or similar 
means. For purposes of this definition, payment by check, 
draft, or other negotiable instrument which may result in the 
debiting of an open-end credit plan or a credit cardholder's 
open-end account shall not be considered payment made by use of 
the plan or the account.
  (z) Any reference to any requirement imposed under this title 
or any provision thereof includes reference to the regulations 
of the Bureau under this title or the provision thereof in 
question.
  [(bb)] (aa) High-cost Mortgage.--
          (1) Definition.--
                  (A) In general.--The term ``high-cost 
                mortgage'', and a mortgage referred to in this 
                subsection, means a consumer credit transaction 
                that is secured by the consumer's principal 
                dwelling, other than a reverse mortgage 
                transaction, if--
                          (i) in the case of a credit 
                        transaction secured--
                                  (I) by a first mortgage on 
                                the consumer's principal 
                                dwelling, the annual percentage 
                                rate at consummation of the 
                                transaction will exceed by more 
                                than 6.5 percentage points (8.5 
                                percentage points, if the 
                                dwelling is personal property 
                                and the transaction is for less 
                                than $50,000) the average prime 
                                offer rate, as defined in 
                                section 129C(b)(2)(B), for a 
                                comparable transaction; or
                                  (II) by a subordinate or 
                                junior mortgage on the 
                                consumer's principal dwelling, 
                                the annual percentage rate at 
                                consummation of the transaction 
                                will exceed by more than 8.5 
                                percentage points the average 
                                prime offer rate, as defined in 
                                section 129C(b)(2)(B), for a 
                                comparable transaction;
                          (ii) the total points and fees 
                        payable in connection with the 
                        transaction, other than bona fide third 
                        party charges not retained by the 
                        mortgage originator, creditor, or an 
                        affiliate of the creditor or mortgage 
                        originator, exceed--
                                  (I) in the case of a 
                                transaction for $20,000 or 
                                more, 5 percent of the total 
                                transaction amount; or
                                  (II) in the case of a 
                                transaction for less than 
                                $20,000, the lesser of 8 
                                percent of the total 
                                transaction amount or $1,000 
                                (or such other dollar amount as 
                                the Bureau shall prescribe by 
                                regulation); or
                          (iii) the credit transaction 
                        documents permit the creditor to charge 
                        or collect prepayment fees or penalties 
                        more than 36 months after the 
                        transaction closing or such fees or 
                        penalties exceed, in the aggregate, 
                        more than 2 percent of the amount 
                        prepaid.
                  (B) Introductory rates taken into account.--
                For purposes of subparagraph (A)(i), the annual 
                percentage rate of interest shall be determined 
                based on the following interest rate:
                          (i) In the case of a fixed-rate 
                        transaction in which the annual 
                        percentage rate will not vary during 
                        the term of the loan, the interest rate 
                        in effect on the date of consummation 
                        of the transaction.
                          (ii) In the case of a transaction in 
                        which the rate of interest varies 
                        solely in accordance with an index, the 
                        interest rate determined by adding the 
                        index rate in effect on the date of 
                        consummation of the transaction to the 
                        maximum margin permitted at any time 
                        during the loan agreement.
                          (iii) In the case of any other 
                        transaction in which the rate may vary 
                        at any time during the term of the loan 
                        for any reason, the interest charged on 
                        the transaction at the maximum rate 
                        that may be charged during the term of 
                        the loan.
                  (C) Mortgage insurance.--For the purposes of 
                computing the total points and fees under 
                paragraph (4), the total points and fees shall 
                exclude--
                          (i) any premium provided by an agency 
                        of the Federal Government or an agency 
                        of a State;
                          (ii) any amount that is not in excess 
                        of the amount payable under policies in 
                        effect at the time of origination under 
                        section 203(c)(2)(A) of the National 
                        Housing Act (12 U.S.C. 1709(c)(2)(A)), 
                        provided that the premium, charge, or 
                        fee is required to be refundable on a 
                        pro-rated basis and the refund is 
                        automatically issued upon notification 
                        of the satisfaction of the underlying 
                        mortgage loan; and
                          (iii) any premium paid by the 
                        consumer after closing.
  (2)(A) After the 2-year period beginning on the effective 
date of the regulations promulgated under section 155 of the 
Riegle Community Development and Regulatory Improvement Act of 
1994, and no more frequently than biennially after the first 
increase or decrease under this subparagraph, the Bureau may by 
regulation increase or decrease the number of percentage points 
specified in paragraph (1)(A), if the Bureau determines that 
the increase or decrease is--
          (i) consistent with the consumer protections against 
        abusive lending provided by the amendments made by 
        subtitle B of title I of the Riegle Community 
        Development and Regulatory Improvement Act of 1994; and
          (ii) warranted by the need for credit.
          (B) An increase or decrease under subparagraph (A)--
                  (i) may not result in the number of 
                percentage points referred to in paragraph 
                (1)(A)(i)(I) being less than 6 percentage 
                points or greater than 10 percentage points; 
                and
                  (ii) may not result in the number of 
                percentage points referred to in paragraph 
                (1)(A)(i)(II) being less than 8 percentage 
                points or greater than 12 percentage points.
  (C) In determining whether to increase or decrease the number 
of percentage points referred to in subparagraph (A), the 
Bureau shall consult with representatives of consumers, 
including low-income consumers, and lenders.
  (3) The amount specified in paragraph (1)(B)(ii) shall be 
adjusted annually on January 1 by the annual percentage change 
in the Consumer Price Index, as reported on June 1 of the year 
preceding such adjustment.
  (4) For purposes of paragraph (1)(B), points and fees shall 
include--
          (A) all items included in the finance charge, except 
        interest or the time-price differential;
          [(B) all compensation paid directly or indirectly by 
        a consumer or creditor to a mortgage originator from 
        any source, including a mortgage originator that is 
        also the creditor in a table-funded transaction;]
          (B) all compensation from any source (other than 
        compensation taken into account in setting the interest 
        rate and for which there is no separate charge to the 
        consumer) paid directly or indirectly by a consumer or 
        creditor to--
                  (i) a mortgage originator, including a 
                mortgage originator that is also the creditor 
                in a table-funded transaction; or
                  (ii) an individual employed by or contracting 
                with the originator or a mortgage originator;
          (C) each of the charges listed in section 106(e) 
        (except an escrow for future payment of taxes), 
        unless--
                  (i) the charge is reasonable;
                  (ii) the creditor receives no direct or 
                indirect compensation; and
                  (iii) the charge is paid to a third party 
                unaffiliated with the creditor; and
          (D) premiums or other charges payable at or before 
        closing for any credit life, credit disability, credit 
        unemployment, or credit property insurance, or any 
        other accident, loss-of-income, life or health 
        insurance, or any payments directly or indirectly for 
        any debt cancellation or suspension agreement or 
        contract, except that insurance premiums or debt 
        cancellation or suspension fees calculated and paid in 
        full on a monthly basis shall not be considered 
        financed by the creditor;
          (E) the maximum prepayment fees and penalties which 
        may be charged or collected under the terms of the 
        credit transaction;
          (F) all prepayment fees or penalties that are 
        incurred by the consumer if the loan refinances a 
        previous loan made or currently held by the same 
        creditor or an affiliate of the creditor; and
          (G) such other charges as the Bureau determines to be 
        appropriate.
          (5) Calculation of points and fees for open-end 
        consumer credit plans.--In the case of open-end 
        consumer credit plans, points and fees shall be 
        calculated, for purposes of this section and section 
        129, by adding the total points and fees known at or 
        before closing, including the maximum prepayment 
        penalties which may be charged or collected under the 
        terms of the credit transaction, plus the minimum 
        additional fees the consumer would be required to pay 
        to draw down an amount equal to the total credit line.
  (6) This subsection shall not be construed to limit the rate 
of interest or the finance charge that a person may charge a 
consumer for any extension of credit.
  [(aa)] (bb) The disclosure of an amount or percentage which 
is greater than the amount or percentage required to be 
disclosed under this title does not in itself constitute a 
violation of this title.
  (cc) The term ``reverse mortgage transaction'' means a 
nonrecourse transaction in which a mortgage, deed of trust, or 
equivalent consensual security interest is created against the 
consumer's principal dwelling--
          (1) securing one or more advances; and
          (2) with respect to which the payment of any 
        principal, interest, and shared appreciation or equity 
        is due and payable (other than in the case of default) 
        only after--
                  (A) the transfer of the dwelling;
                  (B) the consumer ceases to occupy the 
                dwelling as a principal dwelling; or
                  (C) the death of the consumer.
  (dd) Definitions Relating to Mortgage Origination and 
Residential Mortgage Loans.--
          (1) Commission.--Unless otherwise specified, the term 
        ``Commission'' means the Federal Trade Commission.
          (2) Mortgage originator.--The term ``mortgage 
        originator''--
                  (A) means any person who, for direct or 
                indirect compensation or gain, or in the 
                expectation of direct or indirect compensation 
                or gain--
                          (i) takes a residential mortgage loan 
                        application;
                          (ii) assists a consumer in obtaining 
                        or applying to obtain a residential 
                        mortgage loan; or
                          (iii) offers or negotiates terms of a 
                        residential mortgage loan;
                  (B) includes any person who represents to the 
                public, through advertising or other means of 
                communicating or providing information 
                (including the use of business cards, 
                stationery, brochures, signs, rate lists, or 
                other promotional items), that such person can 
                or will provide any of the services or perform 
                any of the activities described in subparagraph 
                (A);
                  (C) does not include any person who is--
                          (i) not otherwise described in 
                        subparagraph (A) or (B) and who 
                        performs purely administrative or 
                        clerical tasks on behalf of a person 
                        who is described in any such 
                        subparagraph; or
                          (ii) a retailer of manufactured or 
                        modular homes or an employee of the 
                        retailer if the retailer or employee, 
                        as applicable--
                                  (I) does not receive 
                                compensation or gain for 
                                engaging in activities 
                                described in subparagraph (A) 
                                that is in excess of any 
                                compensation or gain received 
                                in a comparable cash 
                                transaction;
                                  (II) discloses to the 
                                consumer--
                                          (aa) in writing any 
                                        corporate affiliation 
                                        with any creditor; and
                                          (bb) if the retailer 
                                        has a corporate 
                                        affiliation with any 
                                        creditor, at least 1 
                                        unaffiliated creditor; 
                                        and
                                  (III) does not directly 
                                negotiate with the consumer or 
                                lender on loan terms (including 
                                rates, fees, and other costs).
                  (D) does not include a person or entity that 
                only performs real estate brokerage activities 
                and is licensed or registered in accordance 
                with applicable State law, unless such person 
                or entity is compensated by a lender, a 
                mortgage broker, or other mortgage originator 
                or by any agent of such lender, mortgage 
                broker, or other mortgage originator;
                  (E) does not include, with respect to a 
                residential mortgage loan, a person, estate, or 
                trust that provides mortgage financing for the 
                sale of 3 properties in any 12-month period to 
                purchasers of such properties, each of which is 
                owned by such person, estate, or trust and 
                serves as security for the loan, provided that 
                such loan--
                          (i) is not made by a person, estate, 
                        or trust that has constructed, or acted 
                        as a contractor for the construction 
                        of, a residence on the property in the 
                        ordinary course of business of such 
                        person, estate, or trust;
                          (ii) is fully amortizing;
                          (iii) is with respect to a sale for 
                        which the seller determines in good 
                        faith and documents that the buyer has 
                        a reasonable ability to repay the loan;
                          (iv) has a fixed rate or an 
                        adjustable rate that is adjustable 
                        after 5 or more years, subject to 
                        reasonable annual and lifetime 
                        limitations on interest rate increases; 
                        and
                          (v) meets any other criteria the 
                        Bureau may prescribe;
                  (F) does not include the creditor (except the 
                creditor in a table-funded transaction) under 
                paragraph (1), (2), or (4) of section 129B(c); 
                and
                  (G) does not include a servicer or servicer 
                employees, agents and contractors, including 
                but not limited to those who offer or negotiate 
                terms of a residential mortgage loan for 
                purposes of renegotiating, modifying, replacing 
                and subordinating principal of existing 
                mortgages where borrowers are behind in their 
                payments, in default or have a reasonable 
                likelihood of being in default or falling 
                behind.
          (3) Nationwide mortgage licensing system and 
        registry.--The term ``Nationwide Mortgage Licensing 
        System and Registry'' has the same meaning as in the 
        Secure and Fair Enforcement for Mortgage Licensing Act 
        of 2008.
          (4) Other definitions relating to mortgage 
        originator.--For purposes of this subsection, a person 
        ``assists a consumer in obtaining or applying to obtain 
        a residential mortgage loan'' by, among other things, 
        advising on residential mortgage loan terms (including 
        rates, fees, and other costs), preparing residential 
        mortgage loan packages, or collecting information on 
        behalf of the consumer with regard to a residential 
        mortgage loan.
          (5) Residential mortgage loan.--The term 
        ``residential mortgage loan'' means any consumer credit 
        transaction that is secured by a mortgage, deed of 
        trust, or other equivalent consensual security interest 
        on a dwelling or on residential real property that 
        includes a dwelling, other than a consumer credit 
        transaction under an open end credit plan or, for 
        purposes of sections 129B and 129C and section 128(a) 
        (16), (17), (18), and (19), and sections 128(f) and 
        130(k), and any regulations promulgated thereunder, an 
        extension of credit relating to a plan described in 
        section 101(53D) of title 11, United States Code.
          (6) Secretary.--The term ``Secretary'', when used in 
        connection with any transaction or person involved with 
        a residential mortgage loan, means the Secretary of 
        Housing and Urban Development.
          (7) Servicer.--The term ``servicer'' has the same 
        meaning as in section 6(i)(2) of the Real Estate 
        Settlement Procedures Act of 1974 (12 U.S.C. 
        2605(i)(2)).
  (ee) Bona Fide Discount Points and Prepayment Penalties.--For 
the purposes of determining the amount of points and fees for 
purposes of subsection (aa), either the amounts described in 
paragraph (1) or (2) of the following paragraphs, but not both, 
shall be excluded:
          (1) Up to and including 2 bona fide discount points 
        payable by the consumer in connection with the 
        mortgage, but only if the interest rate from which the 
        mortgage's interest rate will be discounted does not 
        exceed by more than 1 percentage point--
                  (A) the average prime offer rate, as defined 
                in section 129C; or
                  (B) if secured by a personal property loan, 
                the average rate on a loan in connection with 
                which insurance is provided under title I of 
                the National Housing Act (12 U.S.C. 1702 et 
                seq.).
          (2) Unless 2 bona fide discount points have been 
        excluded under paragraph (1), up to and including 1 
        bona fide discount point payable by the consumer in 
        connection with the mortgage, but only if the interest 
        rate from which the mortgage's interest rate will be 
        discounted does not exceed by more than 2 percentage 
        points--
                  (A) the average prime offer rate, as defined 
                in section 129C; or
                  (B) if secured by a personal property loan, 
                the average rate on a loan in connection with 
                which insurance is provided under title I of 
                the National Housing Act (12 U.S.C. 1702 et 
                seq.).
          (3) For purposes of paragraph (1), the term ``bona 
        fide discount points'' means loan discount points which 
        are knowingly paid by the consumer for the purpose of 
        reducing, and which in fact result in a bona fide 
        reduction of, the interest rate or time-price 
        differential applicable to the mortgage.
          (4) Paragraphs (1) and (2) shall not apply to 
        discount points used to purchase an interest rate 
        reduction unless the amount of the interest rate 
        reduction purchased is reasonably consistent with 
        established industry norms and practices for secondary 
        mortgage market transactions.

                             MINORITY VIEWS

    H.R. 2570, the so called ``Mortgage Fairness Act of 2017,'' 
would erode important protections for would be homebuyers under 
the Dodd-Frank Wall Street Reform and Consumer Protection Act 
(``Dodd-Frank Act''), the Truth In Lending Act (``TILA''), and 
the Real Estate Settlement Procedures Act (``RESPA''), among 
other statutes.
    This bill would weaken borrower protections under the 
Consumer Financial Protection Bureau's (``Consumer Bureau'') 
Ability to Repay rule by excluding certain types of mortgage 
loan originator compensation (or commission payments) from the 
points and fees cap for Qualified Mortgage, or ``QM'' loans. 
Qualified mortgages are important loans that ensure that 
borrowers have sufficient assets and income to repay their 
mortgage loan, inclusive to all fees.
    Generally, when a lender originates a QM loan, it must 
follow the Consumer Bureau's Ability to Repay rule, including 
the rule's three percent cap on points and fees for the 
borrower's mortgage, to obtain a safe harbor under the rule. 
H.R. 2570 would change this calculation by excluding certain 
types of loan originator compensation from the three percent 
cap. By changing the points and fees calculation in this way, 
H.R. 2570 could incentivize originators to steer borrowers into 
mortgage products that may not be in the best interest of a 
homebuyer, and it would make it harder to trigger certain 
borrower protections for certain high-cost mortgages.
    Specifically, if a lender offers a borrower a high-cost 
mortgage with an annual percentage rate (``APR'') or total 
points and fees that exceed certain threshold amounts,\1\ the 
borrower receives additional protections under the Home 
Ownership and Equity Protection Act (``HOEPA'').\2\ For example 
before making such a loan, a lender must provide the borrower 
information in advance that explains that he or she is 
receiving a high-cost mortgage, and disclose the terms, costs 
and fees associated with the loan. The lender must also certify 
that the borrower received homeownership counseling about the 
high-cost mortgage being offered. These additional protections 
help ensure the borrower is well informed before receiving 
loan.
---------------------------------------------------------------------------
    \1\For example, high cost mortgage protections are triggered for a 
first mortgage loan if the APR is more than 6.5 percentage points 
higher than the average prime offer rate, which is an estimate of the 
rate people with good credit typically pay for a similar first 
mortgage. In addition, a transaction will be a high-cost mortgage if 
the total loan amount is $21,032 or more and the points and fees exceed 
5 percent of the total loan amount, of if the total loan amount is less 
than $21,032 and the points and fees exceed the lesser of $1,052 or 8 
percent of the total loan amount. See https;//
files.consumerfinance.gov/f/201301_cfpb_high-cost-mortgage-rule_what-
it-means-for-consumers.pdf and https://www.gpo.gov/fdsys/pkg/FR-2017-
08-30/pdf/2017-18003.pdf.
    \2\https://www.consumerfinance.gov/about-us/newsroom/consumer-
financial-protection-bureau-issues-rules-to-strenthen-protections-for-
high-cost-mortgages/ 
---------------------------------------------------------------------------
    More than a dozen national consumer and civil rights 
groups, including the NAACP and the National Consumer Law 
Center, wrote a letter to Congress opposing H.R. 2570, 
explaining:

          The high-cost loan rules currently discourage 
        kickbacks on loans where they are still allowed because 
        these payments count toward the coverage threshold 
        based on points and fees. H.R. 2570 would exclude 
        kickbacks from this trigger, creating an incentive for 
        loan originators to steer borrowers to overpriced loans 
        without getting the benefit of the high-cost loan 
        protections. . . . The supporters of the bill point out 
        that these kickback payments are incorporated into the 
        interest rate and claim that also including it in the 
        points and fees test is redundant. Incorporation into 
        the interest rate is the mechanism used to ensure that 
        the borrower is the one who is actually funding the 
        kickback that promotes steering. But this does not 
        necessitate a carve-out from the points and fees 
        threshold for high-cost loan protections. . . . Carving 
        out these kickbacks from the high-cost coverage rules 
        would disrupt the inclusive approach Congress adopted 
        and promote abusive loan steering and price gouging. We 
        urge you to oppose H.R. 2570. A vote to support this 
        bill is a vote to promote predatory mortgage 
        lending.\3\

    \3\https://www.nclc.org/images.pdf/legislation/opp-letter-hr-
2570.pdf

    Following the devastating financial crisis a decade ago, 
Congress intentionally included all types of loan originator 
compensation in the mortgage points and fees calculation to 
disincentivize the types of abusive loan steering that 
contributed to millions of foreclosures. congress should not 
reverse course by repealing these critical safeguards for 
families looking to buy a home.
    For these reasons we oppose H.R. 2570.

                                   Maxine Waters.
                                   Carolyn B. Maloney.
                                   Wm. Lacy Clay.
                                   Daniel T. Kildee.
                                   Michael E. Capuano.

                                  [all]