Client Alerts

House Passes Package of Mortgage Bills Including Changes to TRID and “Madden Fix”

By: Frances Floriano Goins, George R. Hicks, Jr. and Andrew W. Owen

About: Financial Services, Consumer & Commercial Litigation, Banking & Commercial Finance

Congress voted largely along party lines to pass two bills on February 14 that impact the mortgage industry. The first consisted of a package of revisions to existing rules, including the Real Estate Settlement Procedures Act (“RESPA”). The second resolved an issue related to secondary mortgage market sales.

TRID Improvement Act
Currently, the TILA-RESPA Integrated Disclosures Rule (“TRID”) provides model forms to be provided to consumers prior to a home closing. As part of the “Know Before You Owe” program, the CFPB established TRID in an attempt to simplifying the mortgage closing process.

However, the model forms do not allow for title insurance companies to disclose available discounts, including those for the simultaneous issuance of title insurance for lenders and home owners. Not permitting disclosure of these discounts resulted in mortgage documents containing inconsistencies between the costs reported on the loan estimate and the closing disclosure form. Under the bill, the discounts can now be disclosed; this should alleviate confusion for consumers.

Protecting Consumers’ Access to Credit Act
In response to a 2015 Second Circuit decision prohibiting a debt buyer from charging a usurious contractual interest rate, the House also passed the Protecting Consumers’ Access to Credit Act of 2017, referred to as the “Madden Fix” bill.

The bill is named after the Second Circuit case of Madden v. Midland Funding, LLC, No. 14-2131 (2d Cir. 2015). In Madden, the plaintiff alleged that Midland Fundings’s attempt to collect a debt violated the Fair Debt Collection Practices Act and New York usury law.

While the National Bank Act permits a national bank to charge any interest rate, other creditors must comply with state usury laws. At the time of origination of Madden’s loan, the interest rate exceeded the usury rate in New York, but was valid because it was originated by a national bank. In Madden, the Second Circuit found that the debt buyer could not charge an interest rate that exceeded state usury laws, regardless of who originated the loan.

The Madden Fix bill restores the “valid when made” doctrine. If a loan is valid at the time of origination, a sale on the secondary market does not invalidate the terms of the loan, if the loan is transferred from a national bank to another entity, regardless of state usury laws. This decision will likely positively impact secondary mortgage market sales.

Both bills will proceed to the Senate for further debate and vote.