If you tell the average person that a new law requires lenders to have a good faith belief that a borrower can repay a loan they make, the reaction is quite predictable: “Wouldn’t a lender only make a loan they thought could be repaid?”
That response, which I have heard many times from people outside the industry, provides an important reality: while the risks of substantial litigation costs are very real, in most cases the ability-to-repay claims should be winnable in front of juries. Lenders can significantly increase their likelihood of success and diminish litigation risks by instituting proper policies and procedures and ensuring that their overall compliance infrastructure is sufficient.
Indeed, any lender that is interested in doing non-qualified mortgage lending would be well advised to have compliance systems that exceed the minimum requirements.
In the not-too-distant future, I expect that the opportunities and desire for non-QM loans will increase. Lenders, recognizing that some of the ambiguity in regard to QM lending jeopardizes the promised certainty and safety of such loans, will become interested in the substantial profitability of non-QM lending. This interest will only increase as lenders develop practices to diminish the risks between non-QM and QM loans.
While compliance has been properly viewed by most as merely a cost for lenders, it may very well become an investment critical to engaging in the most profitable form of lending.