Lenders are hoping the Consumer Financial Protection Bureau (CFPB) will approve a 'qualified mortgage' (QM) rule with a safe harbor, protecting them from consumer lawsuits, but a legal analysis shows lenders may still be vulnerable if they are careless or cut corners.

“The QM's requirement to 'satisfy' the safe harbor means the creditor can be challenged on whether they actually 'satisfied,' or strictly fulfilled, the substantive prongs that give rise to the safe harbor,” according to an analysis prepared by the BuckleySandler law firm for the American Bankers Association (ABA).

The QM rule mandated by the Dodd-Frank Act requires lenders to evaluate each borrower's ability to repay a loan. A proposed QM rule issued by the Federal Reserve also requires lenders to place their customers in sustainable mortgages, imposing limits on points and fees while prohibiting certain loan products and features. 

Jurisdiction over the QM rule was transferred to the CFPB last July.  The bureau is expected to issue a final rule this summer.

BuckleySandler attorneys stress that the safe harbor protections require actual compliance with the QM rule and lenders can be challenged based on evidence of non-compliance, such as failing to use verified information about a borrower's income, assets and debts.

“The safe harbor can be probed in court and the safe harbor's veil can be pierced where there is a showing that its terms were violated,” the analysis says.

The alternative to a safe harbor is a “rebuttable presumption” standard, which places more burden on the lender to prove they properly assessed a borrower's ability to repay the loan.

ABA executive vice president Bob Davis said a rebuttable presumption would make it too easy to litigate. “It will lead to a dramatic reduction in lending.” A safe harbor will protect lenders from “non-meritorious lawsuits,” he told National Mortgage News.

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