Real Estate Law

Williams Mullen: Debate Continues over Liability Protection for Lenders: Safe Harbor verses Rebuttable Presumption for “Qualified Mortgages”


Fifteen months after the Federal Reserve Board proposed its initial ability-to-repay rule as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, no final rule has been adopted due in large part to the continuing debate over how to protect lenders who originate qualified mortgages-i.e., mortgages with no negative amortization, balloon payments, or terms exceeding 30 years, among other criteria-from lawsuits alleging violations of Dodd-Frank's new ability-to-repay requirement.   

Mortgage banking advocates have urged the Consumer Financial Protection Bureau to adopt a QM rule that establishes a safe harbor, or complete liability protection, for lenders who originate qualified mortgages against lawsuits alleging ability-to-repay violations.  Meanwhile, consumer advocates have urged the CFPB to adopt a QM rule that establishes only a rebuttable presumption of protection, which borrowers or investors could overcome by showing some particular deficiency in a lender's ability-to-repay determination.

The CFPB has invited comment on the litigation risk that lenders will face if it finalizes a QM rule that includes only a rebuttable presumption.  Lenders predict substantial litigation will result; however, consumer advocates predict otherwise. Unwittingly or not, consumer advocates appear to be pressing for a final rule that will restrict access to the very market that they wish to expand due to the threat (real or perceived) of substantial litigation resulting from the adoption of a QM rule that includes only a rebuttable presumption standard.

If you have any questions about the information in this alert, please contact the author or any member of the Williams Mullen Financial Services Team. 

Please note:
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  • Anonymous
    Mortgage bankers need not worry. It's all about access. Bankers most often have full-time powerhouse attorneys who can easily handle nonsense claims. Consumers, on the other hand, have little to no access and no decent attorney in his right mind is going to spend time on claims without merit unless the consumer has such deep pockets, they find lawsuits to be entertainment and the investor has so much time on his hands, he can't find anything better to do. Should I laugh now or later? No matter what regulations or laws are in place, without enforceability, they are mute. Consumers and investors don't tend to hire legal counsel unless they have legitimate claims because in their worlds, cost and time is an investment and especially if it's associated with a lawsuit, without without a decent promise of an ROI, termperate, intelligent people don't want to waste their time.