Two members of Congress are urging the Consumer Financial Protection Bureau to make sure the final rule on qualified mortgages shields lenders from liability if borrowers default, and the Virginia Mortgage Lending Association wants to encourage other Congressfolk to join in the call.
The Dodd-Frank Act requires that all mortgage loans meet a minimum standard — this is the “Qualified Mortgage” or QM rule. Among other things, it requires that lenders are sure that borrowers have the ability to repay.
Lenders want to be sure that meeting the QM standard is enough to keep them out of hot water — to give them “safe harbor” in the event of a default.
You might think that’s obvious. If you follow the rules, you shouldn’t be help liable. But the final QM rule — which the CFPB is expected to release later this year — might only include what’s called “rebuttable presumption.”
That means that the lender has the benefit of the doubt, but could still face lawsuits even if it meets all the QM requirements: “Yes, BigMortgageCo, my client met the QM standards, but you should have noticed that he was dressed in rags and made his down payment in nickels.”
The VMLA points out that if the CFPB opts for “rebuttable presumption” instead of a full safe harbor, “every legal challenge will have to be fully litigated,” and that lenders would “face potential costly lawsuits for the life of any loan they make.”
So Reps. Shelley Capito (R – W. Va) and Brad Sherman (D – Calif.) are writing a letter to the CFPB urging the agency to adopt a full safe harbor in the final QM rule, and the VMLA is encouraging its members to push their Congressmen to sign on as well.