Lenders, for the first time, are facing the possibility of paying "actual damages" as a result of the “qualified mortgage” (QM) definition, an attorney warned attendees at the Mortgage Bankers Association's (MBA) National Secondary Market Conference in New York.
Actual damages are defined as compensation for losses that can readily be proven to have occurred.
Jeffrey Naimon, a partner at BuckleySandler, said the industry has not paid any actual damages as a result of truth-in-lending claims. But the “ability to repay” standard being created under the QM test could subject the industry to paying consumers compensation if a court finds in a borrower's favor.
The good news, he said, is that because each borrower's circumstance is different, it will be difficult to bring class-action suits, but the actual damages could cost lenders more money.
Ken Markison, MBA associate vice president and regulatory counsel, said if a narrow definition is drawn for the QM, there will be very few non-QM loans originated.
Naimon added that consumer groups at first disbelieved MBA's argument about non-QM loans but “then the light went on." So now these groups are arguing for a narrow QM definition that would "force" originators to make non-QM loans. But the question becomes: Would there be a secondary market for these loans?
The executive vice president, capital markets for SunTrust Mortgage, Paul Thomas, said that if his bank produced any non-QM loans, it would hold them on balance sheet.
Naimon said there are many good policy reasons to have flexibility to sell non-QM loans in the secondary market. The secondary market wants clarity on this issue, whether it comes from government or whether participants have to create it themselves, he said.