Legislation which exempts affiliated business from certain provisions in the Dodd-Frank Act regarding Qualified Residential Mortgages may be considered in Congress before the end of the year, sources say.
According to a source close to the matter, legislation providing relief to affiliated businesses from regulation that counts fees paid to affiliated businesses toward a 3% cap on closing fees on Qualified Residential Mortgages could be considered by the House Financial Services Committee as soon as the week of December 19th. If not taken up then, the legislation would likely be considered in January or February, when Congress reconvenes.
Currently, no hearings are scheduled for the week of the 19th-- the official House calendar shows the regular session of Congress set to adjourn for the year at the end of this week, with a few committee hearings scheduled next week, and nothing scheduled for the week of the 19th. However, it would not be unprecedented for the Congressional session to drag on beyond schedule to within a few days the Christmas holiday, if legislators struggle to wrap up unfinished business. Just last year, for example, Congress did not adjourn for the holidays until December 22nd-- several days beyond its scheduled date for adjournment. This year, contentious battles over a payroll tax extension, extensions of unemployment insurance benefits, and other issues could once again keep legislators in Washington the week of the 19th.
Qualified Residential Mortgages, or QRMs, are mortgages which are exempt from new risk retention requirements for firms involved in securitizing mortgages-- requirements which were created in the Wall Street Reform and Consumer Protection Act of 2010, commonly known as Dodd-Frank. Under the new law, those firms are required to keep 5% of securities based on non-qualified mortgages in their own portfolios, with the intent of encouraging sound lending standards and practices. Observers believe that this requirement will make the QRM designation highly desirable, and will restrict credit for non-qualifying mortgages.
Many of the attributes ofQRMs are being formulated via a rule-making process under the Consumer Financial Protection Bureau, an agency created by Dodd-Frank. A proposal was released for comment earlier this year. QRMs, as currently proposed, would be subject to standards designed to minimize risk of default, including a 20% down payment, a mortgage payment under 28% of borrower income, and other standards. The proposal is still in the rule-making process, and no final rule will be established until next year.
However, the way fees paid to affiliated businesses are counted under the cap can not be changed by that rulemaking process-- they are written directly into law. In Section 1412 of Dodd-Frank is a requirement that total points and closing fees can not exceed 3% of the loan amount on a qualifying mortgage. Title fees, appraisal fees, and other settlement service fees retained by an affiliated business of the mortgage lender currently count towards the 3% cap. Since the language is directly in the law passed by Congress, the requirement must be amended by Congress to be changed.
The Real Estate Service Providers Council (RESPRO), an advocate of affiliated businesses, claims that this provision in Dodd-Frank unfairly discriminates against them, calling the provision "arbitrary" and claiming that the rule would make mortgages in which an affiliated business was used more expensive, and could possibly eliminate mortgage offerings involving affiliated businesses altogether in low-to-mid-income neighborhoods.
On November 19th, a proposed amendment to Dodd-Frank that would exempt fees paid to affiliated businesses from the 3% threshold was published on the site of The Realty Alliance, another pro-affiliated business group which claims to speak for large residential brokerages. (See here for a white paper which includes the language of the proposed amendment. No bill or amendment has been introduced as of yet in the House of Representatives, and it is not clear whether the legislation to be introduced will be identical to, or based on, this draft amendment.)