The Financial CHOICE Act of 2017, which seeks to replace and/or repeal certain aspects of the Dodd-Frank Act, incorporates safe harbor provisions from the Portfolio Lending and Mortgage Access Act.
These provisions seek for an expanded definition of a qualified mortgage to include certain mortgages held on portfolio and provide safe harbor to certain creditors from lawsuits arising under the QM rule, according to Rep. Andy Barr who authored the Portfolio Lending and Mortgage Access Act as reintroduced in April 2017.
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Both bills contemplate amending Section 129C of the Truth in Lending Act (TILA) to add safe harbor protections for (i) creditors who are depository institutions under Section 19(b)(1) of the Federal Reserve Act and (ii) mortgage originators.
1. Depository Institutions
Specifically, a depository institution will not be sued for failing to comply with the minimum standards set forth by TILA, including special appraisal requirements for higher-priced mortgage loans, as it relates to a residential mortgage loan.
Banking regulators, which refer to the Consumer Law Enforcement Agency (the Consumer Financial Protection Bureau as will be renamed if the Financial CHOICE Act is enacted) and the National Credit Union Administration, are compelled to treat the loan as a qualified mortgage if the depository institution has held the loan on its balance sheet since the origination date, and that prepayment penalties on the loan adhere to the limitations set by the TILA.
If a depository institution transfers a loan that it originated to another depository institution due to the former’s bankruptcy or failure or purchase, the depository institution that transferred the loan is deemed to have complied with the above provision.
2. Mortgage Originators
Likewise, mortgage originators will be safe from lawsuits under TILA for leading consumers to residential mortgage loans if they are able to prove the following:
The creditor of the loan is a depository institution and has told the mortgage originator its intent to keep the loan on its balance sheet throughout the life of the loan. And that the mortgage originator will inform the borrower of the creditor’s intention to keep his/her loan on its portfolio.
A mortgage originator is defined under TILA as a person who assists a consumer in obtaining a residential mortgage loan, who offers or negotiates terms of that loan, or takes an application for such a loan, among other things.
Both bills clarify that the amendments will not be construed to prevent a balloon loan from qualifying for the safe harbor set forth in TILA Section 129C(j) if such a loan meets all the requirements of subsection (j).