The Financial Choice Act, which is sponsored by FSC Chairman, Jeb Hensarling, would modify or repeal many of the modifications made by the Dodd-Frank Wall Street Reform and Consumer Protection Act, including wide-ranging changes in financial regulations, revising the structure of the Consumer Financial Protection Bureau, and restraining much of its power.
It also contains provisions that will touch the home mortgage industry. In fact, if passed, the bill would incorporate over two dozen proposed regulatory relief bills for local and community financial institutions, which we include for reader’s reference; H.R. 2896, H.R. 1210, and H.R. 766.
House Majority Leader, Kevin McCarthy, has stated that he anticipates a full House vote shortly on H.R. 10, The Financial Choice Act, which was voted out of the Financial Services Committee (FSC) on May 4.
Information provided by associates at the Ballard and Spahr law firm, Richard J. Andreano, Pavitra Bacon and Barbara Mishkin has been used to explain some of the impact the passage of the law could bring to the mortgage industry, as well as shed light on the impact on CFPB and other regulatory agencies.
H.R. 10 would create a safe harbor under the Regulation Z ability to repay requirements if a depository institution holds a loan in portfolio from the time of origination and complies with a limitation on prepayment penalties. 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 for the life of the loan.
Another provision would affect the definition of points and fees under Regulation Z and high-cost mortgage loan requirements to exclude charges for title insurance and/or title examinations and similar purposes. Under current rules such exclusions were only allowed if the vendor was not affiliated with the lender. Escrowed funds for taxes are currently excluded from points and fees and H.R. 10 would also include insurance escrows in that exclusion. Certain small lenders, those with consolidated assets of $10 billion or less, would be excluded from Regulation Z escrow requirements for higher priced mortgages if the creditor portfolios the loan for a minimum of three years.
The act would also create, under the S.A.F.E. Mortgage Licensing Act, a provisional authority for a loan originator to continue to originate loans while licensing issues are resolved if he or she moves from a depository to a non-depository lender, or from a non-depository lender in one state to another non-depository lender in a different state.
Several changes will affect reporting under CFPB’s revised Home Mortgage Disclosure Act (HMDA) rule. The volume threshold for a reporting institution would adjust to 100 closed-end mortgage loans or 200 open-end lines of credit in each of the prior two years from the CFPB threshold of 25 closed-end and 100 open-end loans. It would also roll back requirements for information reporting institutions must make available to the public to those that existed under HMDA immediately prior to adoption of Dodd-Frank.
The act would also increase the threshold for exemption of small servicers from some servicing requirements. The current minimum is 5,000 loans annually and the servicers and its affiliates must be the creditor or assignee of all of them. This would be expanded to 20,000 loans and the bill makes no reference to ownership or assignment.
Passage of H.R. 10 would have a profound impact on CFPB. First, its name would change to the “Consumer Law Enforcement Agency” (CLEA) and, while its single director format would not change, that director would no longer serve a set term, but instead be appointed at the preference of the sitting President. The agency would also be brought into the Congressional appropriations process (as would the Federal Deposit Insurance Corporation (FDIC), National Credit Union Administration (NCUA,) and Office of Comptroller of the Currency (OCC), have its own Inspector General, and be subject to the same oversight by the Office of Information and Regulatory Affairs (OIRA) as other non-independent regulatory agencies. The Deputy Director would also be a presidential appointee.
Among other changes, the CLEA would have no supervisory authority, no authority to make or enforce rules under Unfair, Deceptive and Abusive Acts and Practices (UDAAP) that affect payday, vehicle title or similar loans, and no authority over arbitration agreements concerning consumer financial products or services.
The law would also significantly interject Congress into the rulemaking process, not only of CFPB, but also other regulators including the Federal Reserve, FDIC, OCC, and NCUA. It creates categories of major and non-major rules and requires a joint resolution of Congress for the former to take effect and allows joint resolutions of disapproval of the latter.
The act would also repeal the amendment to the Equal Opportunity Act established through Dodd-Frank which requires financial institutions to collect and maintain specific data in connection with credit applications made by women- or minority-owned businesses and small businesses.