December 12, 2017

Today Rep. Dina Titus of Nevada’s First Congressional District spoke on the House floor to urge her colleagues to vote on a provision she offered that prevents predatory lenders from skirting consumer protections. Rep. Titus’ Motion to Recommit would prohibit any creditor or servicer that has engaged in unfair, deceptive, or abusive acts or has been convicted of fraud in connection with a residential mortgage loan from being eligible for exemptions outlined in the GOP-backed H.R. 3971, which hacks away at laws that were designed to prevent another housing crisis.  

WATCH REP. TITUS SPEAK ON THE FLOOR:

H.R. 3971 Would Reduce Consumer Protections under the Truth in Lending Act:

Dodd-Frank tasked the Consumer Bureau with implementing mortgage rules under the Truth in Lending Act (“TILA”), including mortgage escrow requirements. The Consumer Bureau’s mortgage escrow rules are designed to ensure that homeowners understand and can meet the full costs of homeownership.

For almost all “higher-priced mortgage loans” (loans with an Annual Percentage Rate of 1.5 percent or more over the current Average Prime Offer Rate), creditors or servicers are required to establish and maintain an escrow account on the borrower’s behalf, covering the borrower’s property taxes, private mortgage insurance, and homeowners insurance.  These amounts are part of what the borrower pays to the creditor or servicer each month in installments.

Escrow accounts are an important consumer protection mechanism, especially for higher-risk borrowers, because they ensure that homeowners have sufficient funds for these expenses, thereby reducing mortgage defaults or loss of the property.  Escrow accounts also keep homeowners from being blindsided by additional costs at the end of each year and provides a more accurate monthly cost estimate for homeownership when the loan is originated.

Under the Consumer Bureau’s rule, creditors with less than $2 billion in assets that serve rural or underserved areas are exempted from escrow requirements on higher-priced mortgage loans – a measure that reflects the Consumer Bureau’s commitment to balanced and tailored regulations for small community banks and credit unions.  This bill, in contrast, would make a dramatic leap – an increase of 1,150 percent – from the Consumer Bureau’s targeted relief and would exempt banks that have up to $25 billion in assets from these requirements, regardless of whether they are serving rural or underserved areas, and without any evidence that this large exemption would increase access to credit for those who need it.

H.R. 3971 Would Reduce Consumer Protections under the Real Estate Settlements Procedures Act:

The Consumer Bureau also provides other flexibilities through either exemptions or adjustments to the Real Estate Settlement Procedures Act (“RESPA”) mortgage loan servicing and escrow account administration requirements for small creditor servicers, provided that they, and their affiliates, own the loans that they service, and service no more than 5,000 loans each year.  H.R. 3971 would increase this sensible exemption by 500 percent from 5,000 loans a year to 30,000 loans, allowing significantly larger servicers to avoid these important consumer safeguards.  And, on top of that, the servicers could also avail themselves of this exemption by holding the loans in portfolio for only three years.

The Consumer Bureau was careful to draft its escrow requirements to address the fact that large servicers, and especially servicers that serviced loans they did not own for an extended period of time, often did not adequately communicate with customers or appropriately track paperwork.  During the lead-up to the 2007-2009 financial crisis, this contributed to millions of unnecessary foreclosures and later on, several billion dollar settlements for abusive and fraudulent business practices.