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How House Democrats Are Caving On Key Mortgage Rules

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WASHINGTON -- House Republican leaders Eric Cantor and John Boehner are about to secure the passage of a bill that chips away at consumer mortgage protections created by President Barack Obama's 2010 Wall Street reform bill. And they have Democrats to thank for it.

The bill would allow mortgage companies to charge consumers higher fees for title insurance and other processing costs associated with a loan, while still qualifying for special perks the government gives to high-quality loans. Cantor expects to bring the bill to the floor on Monday under congressional rules for "non-controversial" legislation, i.e., bills that are likely to pass with overwhelming support. The process requires a two-thirds vote for passage, rather than a simple majority, and prevents lawmakers from amending the legislation.

But the while the bill has broad backing in the House, it has drawn heated criticism from consumer groups, labor unions and the NAACP, which have fought the bill for months. On Monday, the NAACP Washington Bureau Director Hillary Shelton sent a letter to every member of the House of Representatives reiterating its opposition to the bill "in the strongest terms possible."

"The approach taken in this bill leaves the door open for abuses that were typical in the recent subprime crisis," Shelton wrote, noting that excessive and deceptive fees have been disproportionately "targeted at specific demographics including African Americans and other racial and ethnic minority homebuyers."

Yet Republicans in both chambers of Congress have successfully cultivated Democratic support for the bill, including some traditionally stalwart liberals. When it was introduced by Rep. Bill Huizenga (R-Mich.) in October, six of its 10 co-sponsors were Democrats, including Reps. David Scott (D-Ga.), Greg Meeks (D-N.Y.), Betty McCollum (D-Minn.), Gary Peters (D-Mich.), Patrick Murphy (D-Fla.) and Michael Doyle (D-Pa.).

Among those lobbying in support of the bill are mortgage brokers, banks and realtors. Realtors, who have been particularly outspoken, wield significant influence in the House because the industry operates in every congressional district.

The legislation cleared the House Financial Services Committee in May by a voice vote -- a process that doesn't require lawmakers to record their position. Rep. Keith Ellison (D-Minn.) vocally opposed the bill, and presented two amendments intended to defang it, each of which were thrown out on technicalities by Committee Chairman Jeb Hensarling (R-Texas) without a vote. At a May 7 markup hearing, Hensarling said the bill was one of several that the committee had designed "to provide regulatory relief for job creators."

An aide to Scott told HuffPost that the bill would give consumers more options, and added that House Democrats had backed similar language when Dodd-Frank was being crafted, although it did not become part of the final bill.

The bill deals with the definition of a "qualified mortgage," a new category established by the 2010 Dodd-Frank law that serves as an industry gold standard for mortgages. Loans that meet QM criteria are exempt from a host of other regulatory requirements, because they are considered safe for both borrowers and investors.

As part of the new definition, the Consumer Financial Protection Bureau put a cap on the total upfront fees that mortgage companies can charge to consumers, setting the limit at 3 percent of the loan's value. The bill facing a vote Monday would exclude a host of common fees from that 3 percent calculation, effectively allowing companies to charge consumers more money, while still maintaining the regulatory perks of a QM loan.

In particular, the bill would exclude title insurance fees from the 3 percent cap when a mortgage lender steers a borrower to a title insurer affiliated with the mortgage company itself. Consumer advocates have long bemoaned the pricing standards and structure of the title insurance industry, since it is nearly impossible for a borrower to shop around for better title insurance deals, thus immunizing the market from competition. Consumer groups worry that Monday's legislation would encourage title insurers to pay kickbacks to mortgage companies. One of Ellison's failed amendments would have explicitly banned "kickbacks and unearned fees."

While the Senate has resisted efforts to roll back parts of Dodd-Frank, the GOP-controlled House has passed a handful of bills chipping away at the law. House Democrats have occasionally signed on to these deregulatory efforts, but have sided more often with Republicans on more complex and technical financial products like derivatives.

Sen. Joe Manchin (D-W.Va.) has introduced similar legislation in the Senate. The Senate Banking Committee has yet to vote on it, but half of the bill's eight cosponsors are Democrats, including robust liberals Amy Klobuchar (D-Minn.) and Carl Levin (D-Mich.).

UPDATEThe House bill passed Monday night by a voice vote.

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