Banks have been a primary target for regulation and enforcement actions by the U.S. Government over the past few years. But perhaps the holiday season is making things a little better between banks and regulators. Regulators are preparing new rules for mortgages, and they are considering providing banks with some protections against homeowner lawsuits.
According to the New York Times, banks are pressing the Consumer Finance Protection Bureau (CFPB) for a legal shield with respect to qualified mortgages. Banks wants strong protections under the shield and want qualified mortgages to be available to a wide range of borrowers. The CFPB is considering two approaches suggested by the Federal Reserve that will make it harder for borrowers to sue their lenders in the case of foreclosure:
- Option 1: Safe Harbor for Qualified Mortgages. A borrower may only bring a suit against a lender if the borrower can show that the mortgage lacked defined features of a qualified mortgage.
- Option 2: Rebuttable Presumption of Compliance. This option would allow borrowers the opportunity to challenge a mortgage in court, even if it appears the mortgage appears to be a qualified mortgage. The borrower would be afforded an opportunity to introduce evidence to show that the underwriting did not meet the standards for a qualified mortgage. Banks are concerned that a mere rebuttable presumption for qualified mortgages will not provide enough certainty to creditors and investors in secondary markets and will discourage lending to less-than-ideal borrowers.
Without the safe harbor, will banks refuse to lend to borrowers lacking pristine credit? Stay tuned.