The ability-to-repay standards and qualified mortgage definitions issued by the Consumer Financial Protection Bureau leaves the consumer with little or personal responsibility for their actions, an attorney who specializes in regulatory matters said at the Mortgage Bankers Association’s National Secondary Market Conference in New York.
Mitchel Kider of Weiner Brodsky Kider PC said the rule would leave that determination to the originator who will look at eight specific factors and analyze them. The standards for those factors are flexible but they can be challenged.
So the originator will need to have empirical support for their standards.
He added that if the market was left to these factors, lenders would only do perfect loans. So that is where the QM definition comes in, giving lenders either a safe harbor or rebuttable presumption.
Jeffrey Naimon, an attorney with Buckley Sandler LLP, said lenders need to have a “whole package” in place to prove that a loan met the
Nor can lenders price in the risk for consumers challenging if the loan meets the QM or ability-to-repay tests, added Laurence Platt, an attorney with K&L Gates. If they were to do that, they would risk the loan failing the Home Ownership and Equity Protection Act triggers and becoming a high-cost mortgage.
At the end of the day, Platt continued, no matter what happens, the borrower will claim there were wrongful lending practices if the loan were to go to foreclosure.
He predicts many lenders will tire of the cost and delay so they will settle any legal action and give the consumer a modification.
“For the primary market, it is a headache. For the secondary market it is even more so, because you are not there when the sausage is being made,” Kider said.
Platt added the secondary market purchasers need to make sure those who are selling them loans have verification policies in place and documentation on how they are doing those verifications. The purchasers especially need to get their hands around how the originator is doing the calculation on points and fees.
There are many opportunities for originators to make mistakes, Naimon noted.
To which Kider asked rhetorically how is the secondary market going to insure compliance? He does not think that is possible on a loan-by-loan basis.
Platt spoke about the CFPB servicer rules. He said those rules were created to “prevent screw-ups by servicers.”
He believes the rules will increase the cost of servicing and even impact the valuation of mortgage servicing rights. And if there is a problem, the buyer of MSRs can’t just go and say talk to the seller.
“The devil is in the details” over the servicing rules, Naimon said. Kider pointed out that if a purchaser is aware of an error by a past servicer and doesn’t take the affirmative steps needed to fix it, under the Real Estate Settlement Procedures Act, the buyer has the liability for the mistake.
