Magazine article American Banker

CFPB Advisory Provokes New Qualified Mortgage Concerns

Magazine article American Banker

CFPB Advisory Provokes New Qualified Mortgage Concerns

Article excerpt

Byline: Rachel Witkowski

WASHINGTON -- A consumer advisory issued by the Consumer Financial Protection Bureau on Wednesday is stoking fears that the agency may be inadvertently encouraging borrowers to challenge their lenders in court after new mortgage rules go into effect next month.

Under those rules, lenders that make "qualified mortgages," which must conform to certain underwriting criteria, have greater legal protections than those that don't. But in a fact-sheet distributed by the CFPB to consumers, the agency emphasized that borrowers still have recourse against lenders -- and that the CFPB would support them.

"We will stand with borrowers and homeowners to ensure financial institutions treat them properly," the CFPB factsheet said. "Borrowers who fall behind now have more options to take control."

Such language is not altogether surprising considering the CFPB was specifically created to protect consumers , yet some observers said the message could be misunderstood to encourage borrowers to sue.

"We've come to expect" this from the CFPB "but it does have an effect on the industry in that they say 'wow, you are poisoning the water with my relationship with the consumer so they come in applying for a loan thinking that they need you to protect them,'" said Richard Andreano, the practice leader of Ballard Spahr's mortgage banking group. "And the [legal] cost to prove I did my job correctly is so significant I've got to reconsider making a loan in the first place."

Bankers are hypervigilant to any proclamations from the CFPB concerning the new mortgage rules that go into effect Jan. 10, and many are nervous about making non-QM loans. Up until now, the CFPB has been trying to reassure lenders that the new rules will not spark a credit crunch or open up new legal liability.

CFPB Director Richard Cordray has repeatedly knocked down such theories, arguing that there is little legal risk so long as lenders follow the rules. …

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