The U.S. House of Representatives passed H.R. 3211 (The Mortgage Choice Act of 2013) on June 10. According to the National Association of Realtors the act “importantly redefines a provision in the ability-to-repay rule that requires lenders to make good-faith efforts to determine that their borrowers can repay their mortgages before initiating the loans.

This rule presently limits mortgage fees and points to 3 percent in order for home loans to be considered “qualified.” Qualified mortgages have certain, more stable features that help make it more likely that borrowers can “afford the loans.” 

If a lender loans money on a qualified mortgage it means the lender has met certain requirements and that the lender has followed the ability-to-repay rule. 

Requirements for a qualified mortgage include the exclusion of loan features that benefit lenders and harm the borrowers. These include interest-only periods, when borrowers pay only the interest without paying down the principal (the amount borrowed). They also include a feature called negative amortization, which allows loan principal to increase over time, even though the borrower is making payments.

Balloon payments, larger-than-usual payments at the end of a loan term, are also forbidden. 

The bill, if passed by the Senate and signed into law by Pres. Barack Obama, would clarify this rule by further defining “points and fees.” The bill now moves to the United States Senate for its consideration.