Mortgage Choice Act of 2015

Floor Speech

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Ms. MAXINE WATERS of California. Mr. Speaker, I yield myself as much time as I may consume.

Mr. Speaker, I rise today in opposition to H.R. 685, the so-called Mortgage Choice Act, which would roll back protections for home buyers, make mortgages more expensive, undermine Dodd-Frank, and undo the important work of the Consumer Financial Protection Bureau.

As its title indicates, the Mortgage Choice Act would affect choice, but in the wrong way. It would invite a return to a recent time when hard-working Americans were choosing whether to pay for medication or their mortgage, a time when they were faced with choosing between sleeping at a homeless shelter or spending one more night in the car.

These choices were and still are being made by many of those who suffered as a result of the financial crisis, a crisis that was caused in large part by predatory mortgages.

During this time, lenders often piled on excessive upfront fees by exploiting the opaque pricing and sales system for settlement services, like title insurance, which too often left borrowers without the information necessary to shop around or negotiate for lower prices.

They cared little about whether the borrower had the ability to repay the loan over the life of the mortgage because they raked in upfront fees at the point of origination.

Just to make it clear, anyone who has bought a home, who has got involved with negotiating for a mortgage would understand very clearly what we are talking about. We are going to focus on title fees, but there are a lot of fees up front that would-be homeowners are asked to pay for, including appraisal fees and inspection fees.

So during the subprime meltdown and the crisis that we had, we determined that there were many of the mortgage lenders, the originators, who were just piling on these fees. This is in addition to the downpayments they were making, and so they were making more money.

Because they were making more money, this is what caused many of our homeowners to lose these homes, because they were paying too much up front and they were being gouged with these predatory loans.

In response, the Dodd-Frank Act entrusted the CFPB with the responsibility of ensuring that lenders and their affiliated companies were restrained from charging excessive fees.

What are we talking about?

We are simply talking about mortgage lenders and originators who owned other companies like title companies, or who were affiliated with other companies like title companies. And why were they affiliated?

They were affiliated, or they owned these companies, so that they could make more money, because these affiliated companies would mark up the price of these fees and, basically, kick back to the originator some money.

One way the CFPB achieved this was through a standard known as a qualified mortgage, which, among other things, placed a 3 percent cap on upfront fees. What they simply said was, You can't just keep charging any old thing that you want to. It doesn't make good sense that people are ending up paying 5 percent, 6 percent and on and on in these upfront fees. So we are going to put a cap on for 3 percent of upfront fees.

These 3 percent fee caps include those paid to affiliates. Don't forget, these are these companies that are owned by the originator, or affiliated with them. This 3 percent fee cap includes, again, those paid to affiliates of the lender for services such as, again, property appraisals, settlement services, and title insurance.

It is these fees that pose the greatest risks to consumers since they invite lenders to steer borrowers directly to their affiliates without open competition and with higher prices.

So, simply, what the originators were doing was saying, okay, this is who we are going to get you to pay money to for these services that you need in order to get this loan. They didn't ask you if you knew a title company. They didn't invite the independent companies in to compete. They just simply steered the borrowers into these affiliated companies.

In the past, creditors have offered incentives like reduced office rent, bonuses, commissions, or other financial perks in exchange for business referrals.

Though Dodd-Frank banned these type of kickbacks, some creditors are circumventing them by buying or creating businesses so they can profit by referring their customers to their affiliated service providers. It is worse than referral. They just write it up, and the borrower doesn't even know that they had an opportunity to shop around.

Others, like J.P. Morgan and Wells Fargo, recently settled cases of wrongdoing within the past year for engaging in a kickback scheme with an affiliated title company.

But instead of strengthening this ban on kickbacks, today, this House considers legislation that would actually incentivize these cozy relationships which increase creditors' profits at the expense of consumers. In some cases, these referral financial incentives are as much as half of the premiums home buyers pay.

Buying a home is a complex venture. How many among us who own homes have really ever shopped around for title insurance? I imagine very few.

Consumers should not have to be worried that their service providers are colluding to scam borrowers. Instead, they should be competing to provide them the best prices.

H.R. 685 would undermine the CFPB's definition of affiliated services by removing title insurance fees charged by affiliates of the lender from the 3 percent cap. As a result, creditors will actually be encouraged to direct borrowers to expensive affiliates, codifying a system of kickbacks in our laws. This is not only detrimental to consumers but to small businesses that provide unaffiliated title insurance.

So what they are basically saying is, We don't like it that you have had reform in the law. We don't like it that you have discovered that these kickback schemes go on. We don't like it that you now know that some of these originators, these lenders, own some of these businesses.

We want them to be able to charge as much in fees as they can get. Let them gouge, or let them simply write in companies that they know will pay them more money for getting this business.

So we have said, in the Consumer Financial Protection Bureau, that this should be limited to 3 percent. That is enough. You don't need to take more from the consumers.

Title insurance is already an uncompetitive market, and State protections are often weak and, at times, nonexistent. This measure will, ironically, ensure even fewer choices for consumers because consumers rarely know that other options exist.

As a result, they will often simply rely on what they are kind of forced to do or made to do, or the recommendations of their lender, who, under H.R. 685, can simply refer them to affiliated entities who can then charge excessive fees without regard for the 3 percent cap.

Mr. Speaker, a diverse coalition, ranging from the NAACP and the National Council of La Raza to the Center for American Progress and the Center for Responsible Lending, have all voiced their opposition to this so-called Mortgage Choice Act.

The Obama administration has pledged to veto the measure because it ``risks eroding consumer protections and returning the mortgage market to the days of careless lending.''

We need only reflect on the 2008 mortgage crisis to understand that lenders too often focused on profiting from upfront payments through points and fees, rather than taking care to originate loans whose value derives from long-term performance.

I am alarmed at how short our memories have become. It has barely been 5 years since the worst of the crisis subsided, and we are already welcoming a return to the abusive practices that contributed to the subprime meltdown.

This measure will drive up the cost of mortgages, limit competition, and ultimately hurt consumers, so I sincerely urge my colleagues to oppose it.

Mr. Speaker and Members, I have spent hours with consumers begging for loan modifications, trying to save their homes. They didn't know what they were signing up for when they signed on the dotted line, for many of these mortgages were simply gouging them, simply telling them that they could get refis anytime they wanted. They didn't know that when they were told: Don't worry about how much money you make, we can fix that; don't worry about whether or not we are going to be able to not only refinance, but we can give you this for interest only; and on and on and on, with all of these exotic products. And they certainly didn't know about all of the fees that they were paying up front. They didn't understand that they should have had some options. They should have had some choices, but they didn't have; they didn't have because these lenders were just putting them into paying companies that they were affiliated with, that they were going to make more money off of.

This is shameful. I don't know why we are spending our time in the Congress of the United States trying to gouge consumers and trying to put us back where we were with the subprime meltdown and the crisis that was created.

We have a lot of things we should be attending to. There are a lot of concerns that our consumers have out there. Our consumers are concerned about jobs and job creation. They are concerned about pay equity. They are concerned about homelessness. They are concerned that we have the housing, to attend to those who have jobs that cannot afford to pay the price of rental housing. They are concerned that if they want to buy a home that they will be treated fairly, that they will not be gouged, that they will not be taken advantage of.

We know that when you buy a home, you have a stack of papers this high to sign. We also know that if you are well off, you can get your lawyer, you can get your representatives to read through these papers and help you get the best mortgage. We know that Members of Congress know how to negotiate, know how to bargain, know how to get the best loans, know how to shop around; but not all of our consumers are that fortunate, not all of them are prepared, and they listen to what they are told by their lenders.

I want to tell you, the business that we are involved in here with this bill where we are trying to say forget about that 3 percent cap, let these lenders charge as much as they can get, let them gouge the consumers--this is wrong. This should not be done by Members who are sent here to represent all of our constituents, all of our consumers, and more than that, the more vulnerable of them, those who don't have high-priced lobbyists in the Halls of Congress, those who can't even get their Members of Congress to return their telephone calls if they have a complaint. We should be here dealing with the real issues of the day, not using our influence and our time to simply fatten the pockets of those who would gouge our constituents.

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Ms. MAXINE WATERS of California. Mr. Speaker, with all due respect to my chairman, Mr. Hensarling, this debate is not about McDonald's, it is not about Burger King, and it is not about the National Tire and Battery Company. This is about our constituents who want to be homeowners, who are gouged, who are misled, and who are steered into companies that are going to provide kickbacks for their loan originators.

We need to get rid of some of these myths. The myth that we have heard today is we need H.R. 685 to ensure access to credit for low-income households. Well, let's talk about the facts.

The cost of title insurance is opaque. Borrowers are responsible for paying for title insurance, but title insurance pricing is basically negotiated between the lender and the title insurance company. The pricing and sales system is completely nontransparent, making it impossible for borrowers to shop for better prices on title insurance. In addition, when borrowers spend money on inflated title insurance premiums, it makes homeownership less sustainable. High title insurance prices mean borrowers have less money to put toward a down payment or to put toward improvements to their home.

Even The Wall Street Journal agrees. Here is a quote from an article from March 28, 2014: ``Title insurance can cost hundreds of dollars for modest houses and thousands for multimillion-dollar properties. Yet many home buyers don't focus on the product, or the price, until they sit down at the closing.''

The article went on to describe that ``upstart insurers and agencies are challenging the status quo.'' Two insurers are ``marketing directly to consumers on the Internet, offering online quotes to home buyers who plug in basic information about the property, such as location, purchase price and loan amount. And they are offering savings of up to 35 percent off what established firms charge.''

But these upstart companies have had a hard time in securing market share because they don't have the profits to afford to offer kickback-like arrangements.

The CFPB has taken reasonable steps on the affiliated title insurance issue, carefully considering the industry comments in their proposed rule and deciding that the harm to consumers was too great to exclude affiliated title. The inclusion of title insurance, qualified mortgage points, and fee caps serves to limit title insurance pricing from even greater excesses.

As Professor Adam Levitin of Georgetown University, a Democratic witness at the hearing on H.R. 685, concluded: ``To the extent that we are concerned about ensuring greater availability of credit to consumers, exempting title insurance from the HOEPA and QM point and fee caps is a terrible idea as it virtually guarantees that consumers will be gouged with increased title insurance costs which make homeownership more expensive.''

Make no mistake; Wall Street always argues that consumer protection will hurt access to credit when they want to stop those efforts dead in their tracks. In fact, we heard these same arguments in the early 2000s as the industry lobbied against consumer protection. In 2007, Representatives Brad Miller and Mel Watt introduced, or reintroduced from 2004, a bill supported by consumer groups to curb predatory lending practices which also would have held financial companies that securitize mortgages liable for certain violations. That bill eventually was included in Dodd-Frank as title XIV of the bill. But remember that Bear Stearns spent $500,000 lobbying against Miller's bill and another piece of proposed mortgage legislation right up until the investment bank cratered in March of 2008.

Simply, in wrapping up this debate, it is clear that there should be a cap on fees. It is clear that when consumers try and sit down at a closing and try to do the best job that they can to protect their dollars so that they can have money left to fix up the house that they are trying to buy or they can have enough money to ensure that they are able to make the mortgages, they don't want to be steered in ways that some of these loan originators have done and continue to do. They don't want to be steered to affiliated businesses who will simply kick back some of those profits to the lender who sent them to them in the first place.

So, Mr. Speaker, I would ask my colleagues on the opposite side of the aisle to just consider what you are spending your time on. Consider whom you are advocating for. Consider that you are advocating for people who are making lots of money. They don't really need your advocacy. They do very well because they have got high-paid lobbyists walking the halls of Washington, D.C., following us around from our offices to the toilets. Consider that if this time were better spent really supporting the reforms in Dodd-Frank and supporting the Consumer Financial Protection Bureau, we would be doing a better job for our constituents than coming in here trying to protect the biggest and the richest firms who are doing very well out there.

Don't forget, prior to Dodd-Frank, there was no real protection for consumers. That is why we have the Consumer Financial Protection Bureau. They are doing a great job; and they are providing us with the research, they are providing us with the investigations, and they are providing us with the information that we should be using to protect consumers rather than coming on this floor and in our committees trying to denounce them, trying to make sure that they are not able to do business, trying to defund them, trying to discredit them, and trying to do everything that they can to keep them from being effective. The Consumer Financial Protection Bureau is just about that: protecting our consumers in ways that they were not protected before we had the great subprime meltdown and the great crisis that was created in this country.

We should all be trying to do our very best not to return to 2008, not to return to a time where we were destroying communities, where boarded-up homes for blocks and blocks and blocks in communities were driving down the value of other homes in those communities. We should be trying to do everything that we can to make sure that we care about homeownership.

I hear from the other side of the aisle that somehow we don't care about people owning homes. But what I really hear when I listen to that is that they don't care what price they have to pay in order to get in a home; they don't care if they are gouged with high fees; they don't care if they are extended credit that they can't afford; they don't care that they are going to lose these homes; and finally, they don't really care whether or not they are going to get modifications so that they can stay in the homes.

As a matter of fact, many of our consumers who have tried their very best to save their homes have been turned down by the very financial institutions that put them in the position that they happen to be in. Many of those financial institutions we bailed out, and we have gotten nothing in return for much of those bailouts that we have done.

So we have an opportunity to respect not only our constituents and our consumers, but to respect the fact that we have finally evolved to the point where we have reforms.

I know and I hear from time to time that somehow we on this side of the aisle believe that the Dodd-Frank reforms are cast in concrete, that there can be no modifications, no changes. Well, you heard the chairman say that we passed out 11 bills. We passed out, in a bipartisan way, bills that some of us kind of held our nose and passed out because we wanted to show that maybe these particular bills were not that harmful and maybe weren't harmful and that we could work in a bipartisan way even though some of them questioned some of the work that had been done in Dodd-Frank.

I have said and many other members of the committee on my side of the aisle have said that we are willing to make technical corrections; we are willing to make some modifications that make good sense, but we are not willing to destroy the reform that we did, that we worked so hard for. Dodd-Frank is extremely important, and we should be about this business of implementing these reforms so that we can protect our consumers.

I am taken aback and I am surprised that many of our Members who are here advocating for the rich lenders, for the people who caused the problem in the first place, can go back home and look their consumers in the eye and tell them they are really working for them, they are really working to make sure that they can own a home. They don't really know, and I don't think that many of those are going back and saying: Well, let me tell you what I did today. I made sure that there was no cap on fees and that the lenders can charge whatever they want working with the affiliated companies; and this cap at 3 percent that they have come up with in Dodd-Frank reforms doesn't make good sense, and they should be able to charge you whatever they want to charge you.

I don't think that we have Members who are here on this floor today that are advocating that we get rid of these caps and that we allow these lenders to have these relationships with the affiliated companies where they keep steering the business into them, steering the business into them.

How many of those who are advocating have asked the lenders: How much money are you making back on these loans, on these fees that you are allowing the affiliateds to charge them? Do you really get a share in those profits? Do you really get a kickback? If so, let's have some transparency. Let's shine some light on how much money you are making. I bet you one thing. I bet you none of them will tell you: We are not making any money. We are just doing this because, well, we are just doing it because, oh, we think that this is a better way to do it.

So I am asking my colleagues in this House to reject this legislation. We have been on this floor today on two important bills, one on manufactured housing where, again, we have advocates on the opposite side of the aisle who would like to see the manufactured housing industry make more money on the poorest of people, on the most vulnerable in our society. They would like to charge interest rates above prime interest, 10 percent above prime interest. As we have stated, when the interest rates begin to rise, this means that it can go beyond 14 percent to 15, 16, 17, and 18 percent.

We don't know how high it could go; yet the time that we have spent advocating for the richest of the rich who are in this business to be able to gouge these poor people and the time that we are spending again on another bill that would allow the richest of the rich to gouge poor homeowners who don't know and don't understand all these fees that they are being charged and the fact that we have a cap that they want to remove, why are they spending their time representing those who really don't need their representation?

I would ask my colleagues to reject both of these bills. I would ask my colleagues to stand up for the least of these. I would ask my colleagues to make sure they remember the lessons of 2008, and they are reminded of the fact that not only are families destroyed, but whole communities have been destroyed by what took place with this subprime meltdown and this crisis that took us into a recession, almost a depression.

We can't forget these lessons; we can't afford to forget these lessons. We are Representatives of the people. Representatives of the people don't act that way. Representatives of the people don't forget. They do everything in their power to make sure that they provide a safety net, that they provide some protection, that they look out for them, that they are their voice inside this place where we are making public policy, that the public policy includes them, that the public policy does not forget them, that the public policy is not the public policy that is designed and supported by the richest 1 percent in this country, but really, the public policy comes out of the voices of all of those who have been sent here from all over this Nation from some of the richest communities to some of the poorest communities.

We talk about jobs and the need for the creation of jobs, but I don't hear the opposite side of the aisle talking about that. I don't hear them talking about how we can create really more housing opportunities for those who want to buy and for those who have to rent.

I don't hear any talk about what we can do to provide economic development in this country, how we can repair the infrastructure, make sure that our bridges are working, that our water systems are working, that our roads are in good shape. I don't hear that. I hear time being spent on how we can help the richest of those who don't need our voice, who don't need our help.

It is time to stop this madness. It is time to call it what it is. It is time to ask: Why is it that the richest of the folks in the businesses in this country who have so many paid lobbyists, who are up and down these halls every day, get so much representation? Why is it they have so much influence? Why is it they have been able to direct the public policy in ways that the average citizen cannot do?

I want to tell you--you talk about the middle class. Yes, there is an erosion of the middle class because of the way that the middle class is not really represented. We allude to the representation, but it is really not here.

I ask my colleagues to reject this legislation, to not allow anybody on this floor to tell them that this is in the best interest of consumers because it is not.

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