Americans still have not fully recovered from the foreclosure crisis, yet some members of Congress already want to dilute new consumer protection rules for mortgage products, write Rep. Maxine Waters (D-Calif.) and Sen. Elizabeth Warren (D-Mass.). The proposed Consumer Mortgage Choice Act would undermine the Dodd-Frank Act’s ability-to-repay stipulation requiring lenders to assess whether a borrower can afford a mortgage before extending credit to that individual. The rule dictates that if lenders offer loans that meet the qualified mortgage (QM) standards of the Consumer Financial Protection Bureau (CFPB), it is presumed that they have proven the borrower’s ability to repay and are therefore protected from litigation. The Consumer Mortgage Choice Act would create exceptions that allow more high-cost loans to qualify as QM loans. Waters and Warren warn that the proposed legislation renews incentives for lenders to encourage high-risk, high-fee loans that consumers may not understand or afford. It also would welcome predatory lenders back into the fold by weakening an ability-to-repay provision that counts markups in the cost of subprime loans toward a limit on points and fees. The Consumer Mortgage Choice Act would strip this type of indirect compensation from the cap, giving mortgage brokers reason to steer borrowers into risky and expensive loans even when they qualify for better terms. Supporters say the changes would ensure that more safe mortgages pass the QM test and guarantee access to credit for low-income Americans, but the authors contend that such arguments encourage a lack of consumer protections that contributed to the financial crisis.
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