Mortgage lenders may be able to find safe harbor from certain lawsuits through a move the Consumer Financial Protection Bureau is considering in an effort to encourage lending to well-qualified borrowers, according to the Wall Street Journal.
Many in the mortgage industry have been up in arms regarding the implementation of the Dodd-Frank Act and creation of the CFPB following the mortgage meltdown, saying that more regulations and restrictions on mortgage lending are constricting activity.
The potential proposal would establish a standard, national definition for “qualified” mortgage loans.
The Wall Street Journal reports:
As part of its deliberation, the Consumer Financial Protection Bureau is considering providing a full legal shield for high-quality loans that qualify, mandating that judges rule in lenders’ favor if consumers contest foreclosures, these people say.
The shield against lawsuits would be a welcome move for mortgage lenders. Seven major U.S. banks have spent more than $76 billion on mortgage-related costs and litigation since 2008, according to Credit Suisse Group. Lenders are likely to have up to a year to comply with the new mortgage rules.
Small and midsize lenders have been the most vocal in calling for such a “safe harbor,” contending that their biggest competitors, including Wells Fargo & Co., Bank of America Corp. and J.P. Morgan Chase & Co., can more easily absorb the risk of lawsuits.
“A safe harbor creates more certainty and competition in the mortgage market, which benefits consumers,” a spokeswoman for Regions Financial Corp. said Monday. Other banks declined to comment or couldn’t be reached.
Officials at the [CFPB] are optimistic that the plan being considered would give lenders greater confidence about making more mortgages, the people said.
“It doesn’t do anybody any good for us to develop an elaborate set of protections if nobody’s going to then lend money to consumers,” Richard Cordray, the CFPB director, told the Senate Banking Committee last month. “We absolutely don’t want to make a judgment that’s going to freeze up or further constrict credit in the mortgage market.”
The possible proposal to define a “qualified mortgage” could consider the percentage of income borrowers are spending to repay all of their debts, the WSJ reports.
Written by Alyssa Gerace
