If the Consumer Financial Protection Bureau wishes, it could allow borrowers to challenge future foreclosure actions by questioning whether the loan was a "qualified mortgage" in court.

Banks have been lobbying policymakers since May when the Federal Reserve published several options for how lenders must determine a borrower's ability to repay a mortgage under the Truth in Lending Act. The new rules were proposed under the Dodd-Frank Act to outlaw risky and misleading home loans.

One of the options, known as the QM rule, would allow lenders to originate "qualified mortgages" under a legal safe harbor, provided the loans do not have certain features such as negative amortization, balloon payments, interest-only payments, or terms exceeding 30 years. As long as the bank stays within these guidelines, it will be in compliance.

Another option for QM, though, provides a "rebuttable presumption of compliance" clause, meaning the lender is presumed compliant as long as it follows guidelines in the first option and also verify the borrower's employment, debt-to-income ratio and credit history.

The industry is very concerned that the CFPB, which assumed the rulemaking duty from the Fed this summer, will choose option two. According to some, the "rebuttable presumption" would mean any future foreclosure would be thrown into court. Foreclosure defense attorneys will able to challenge whether or not the loan being foreclosed upon was QM compliant or not, and if it wasn't, judges could award TILA damages to the borrower.

"It would be much more expensive if everyone did this," said Richard Andreano, a partner at the financial law firm Ballard Spahr. "It would get to a point to where it would almost be malpractice for a foreclosure defense attorney not to pursue the claim."

Roy Oppenheim at Oppenheim Law Firm, a defense attorney in Florida, said there would only be challenges brought when the homeowner and the defense attorney have evidence of noncompliance.

"Not every foreclosure defense attorney will do this," he said. "If they make good loans there should never be a problem."

In the hardest hit areas, courts are already flooded with foreclosure cases. At about the same time the Fed released the QM options this spring, New York courts held 80,000 pending cases, and each one spent about 900 days in the system. Florida had to set up a "rocket docket" to deal with the backlog. At its height, the Sunshine State court was moving through 82 cases an hour, sparking lawsuits from consumer advocacy groups claiming it was unconstitutional. The rocket docket shut down this summer due to lack of funding.

Andreano said if a judge finds the loan wasn't written to QM standards, the TILA damages awarded to the borrower would be taken out of the outstanding balance on the loan. And that's before the legal expenses. The largest banks are spending billions every quarter on mortgage-related claims.

Even the Fed acknowledged the vagueness of the QM rule in the Dodd-Frank Act and warned the CFPB of the consequences of taking either side.

"If the 'qualified mortgage' definition is deemed to be a safe harbor, the consumer could not allege the creditor violated the repayment ability requirement by failing to consider and verify employment status, simultaneous loans, current obligations, or credit history," according to the Federal Register. "However, the drawback of this approach is that it provides little legal certainty for the creditor, and thus, little incentive to make a 'qualified mortgage,' which limits loan fees and features."

Mortgage Bankers Association CEO David Stevens urged a House subcommittee to include a safe harbor provision for QM in a future mortgage finance structure. He said the rebuttable presumption would shut out many borrowers from owning a home and increase the costs for those who could.

Safe harbor, he said, "will provide the strongest incentives for lenders to operate within its requirements, given the severe penalties resulting from non-compliance."

The Fed kicked the rulemaking duties to the still-forming CFPB, which remains without a director. Senate Republicans blocked a vote on nominee Richard Cordray, demanding reforms such as a commission instead of a director and to move CFPB funding responsibilities to a congressional committee.

A decision on the QM rule was due in the first quarter of 2012, because even without a director the bureau can still finalize rules that are transferred to it, in this case from the Fed.

"We're still reviewing the comments and don't have anything to say at this point about the specifics of the rules," a CFPB spokesperson said.

The debate is taking place as the qualified residential mortgage continues to grab most of the attention. The QRM is an exception to the risk-retention rule under the Dodd-Frank Act. Among other requirements, borrowers would have to put 20% down on a mortgage in order for a bank to avoid retaining 5% of the risk on the loan after it is securitized.

Even Google asks searchers if they would like to correct QM to QRM on its results page.

Mike Heid, the head of the Wells Fargo (WFC: 29.60 +1.89%) mortgage division, the largest originator in the U.S., said in a December interview with HousingWire that whatever the CFPB decides, the QM rule will set the market for years to come.

"Some of the talk about customers having to have a 20% down payment in order to get a loan, that's just not true. A 20% down payment is one way, one definition of what would be QRM, but loans will still be made in the non-QRM space," Heid said. "That's not true in the non-QM space."

Write to Jon Prior.

Follow him on Twitter @JonAPrior.