House Committee Passes Bills to Delay TRID Enforcement, Revise QM

6.08.2015
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The House Financial Services Committee approved a bill that would delay the Consumer Financial Protection Bureau’s enforcement of the new TILA-RESPA integrated disclosure rules. It also approved two additional bills addressing the qualified mortgage rule and GSE executive compensation.

The bill, sponsored by Rep. French Hill, R-Ark., would delay the CFPB’s ability to enforce violations of its new mortgage disclosure form if lenders have made a “good-faith effort” to comply. The measure passed the committee vote 45 to 13 on Wednesday.

The CFPB issued a rule in 2013 integrating requirements from the Truth in Lending and Real Estate Settlement Procedures acts into a single set of disclosures to mortgage borrowers, known as TRID. The rule was meant to go into effect Aug. 1, but the agency extended the deadline to Oct. 3 after a clerical error. Critics still argue lenders need more time to get their systems fully compliant with the rule.

The measure does not delay the effective date of the TRID rule but would forbid private lawsuits or CFPB enforcement actions related to violations of the rule until Feb. 1, 2016.

During the committee’s debate on Tuesday, Rep. Brad Sherman, D-Calif., who cosponsored the bill, said that it does not hurt CFPB, but instead just helps lenders.

“This bill does not delay for one minute the new form,” Sherman said. “It simply says that, for a period of a few months, if you do everything possible to implement the new policy, and you screw up this way or that way, you are not going to be faced with the lawsuits or the enforcement actions.”

Qualified Mortgage

The panel also took up a bill to establish a “safe harbor” that would exempt banks from the CFPB’s “qualified mortgage” requirements if the institution holds the loan in its portfolio, thus assuming 100% of the risk of the loan’s default.

The bill’s author, Rep. Andy Barr, R-Ky., said he wants to expand the availability of mortgage lending, which he claims has been stymied in recent years because it is easier to sue lenders if they originate loans that fall outside of the QM definition.

“By bearing the risk, a financial institution will have every incentive to make sure a borrower can repay a loan,” Barr said Tuesday.

The committee voted to approve the bill 38 to 18, while an amendment offered by Rep. Maxine Waters, D-Calif., that would have placed an asset limit on the exemption was defeated 34 to 21.

Waters, the top Democrat on the committee, wanted to exclude high-cost mortgages and other exotic products from qualification for the safe harbor. The amendment also would have limited the safe harbor to institutions whose assets are below $10 billion, are not “specialty banks” and have a limited geographic footprint. The CFPB could also set additional restrictions under Waters’ amendment.

“Under our proposal, consumers couldn’t be hit with high upfront fees or exotic products,” Waters said. “For those who say this [amendment] is unnecessary…I would remind them that both Countrywide and Washington Mutual added many exotic loans to their portfolios, with disastrous results.”

Barr, who opposed the amendment, nonetheless said that he had been working with Rep. John Carney, D-Del., and other Democrats to set up appropriate “guardrails” in the bill that could address some of the concerns raised by Waters and other Democrats. Prior to the vote, he pledged to continue that work on “potential legislative language as [this bill] advances to consideration on the House floor.”

What exactly the nature of such an agreement might be is unclear. Issac Boltansky, an analyst with Compass Point Research and Trading, said in a memorandum ahead of the vote that the bill will be more likely to advance in the Senate if there are some limitations made, and that his expectation was that “there is room for a compromise…if the bank asset cap is set at $10 billion.”

Executive Compensation at the GSEs

Ahead of the vote, lawmakers on both sides of the aisle appeared more supportive of a measure to cap the salaries of executives at Fannie Mae and Freddie Mac, making their top salaries equivalent to the highest salaries at the Federal Housing Finance Agency.

The committee voted to approve this measure 57 to 1.

Rep. Ed Royce, R-Calif., the bill’s author, said that the bill would undo the FHFA’s decision earlier this spring to approve the government-sponsored enterprises’ executive salary increases from $600,000 per year to $4 million. Because those firms are backed by taxpayers and remain extremely vulnerable to distress in the event of a financial downturn, executives’ compensation should reflect the fact that they are paid by the taxpayer, he said.

“Multimillion-dollar paydays for Fannie and Freddie executives are being borne by the public,” Royce said before the vote. “These [compensation packages] represent a failed grasp on reality on the part of these institutions and their regulator.”

The bill also included language that would place non-executive employees on the same pay scale as all other federal agencies. Royce later introduced an amendment, unanimously approved by a voice vote, that struck that portion of the bill in an effort to “garner bipartisan support” for the measure in the full House.

The bill fielded no opposition among Democrats on the committee and is likely to move forward for approval by the Senate and be signed by the President. The White House and Treasury have already called the compensation packages excessive, and Democrats in Congress have likewise supported reining them in. Whether the bill is introduced on its own or combined into a package with more divisive legislation is the main question about whether it will proceed further, according to Boltansky.

“Passage may ultimately depend on whether other measures — such as Sen. [Bob] Corker’s [R-Tenn.] prohibition on the disposition of the U.S. Treasury’s stake in the GSEs — are attached to the effort,” Boltansky said.

Voting on the three bills was part of a marathon two-day session where the committee considered more than a dozen bills aimed at changing a wide swath of financial policies.

 

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