Dismantling Dodd-Frank, High Cost Loan Test Changes

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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.  



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