Safe-Harbor Liability Provision Termed 'Stringent'

The safe-harbor provisions to protect securitizers from liability in a House predatory-lending bill would create "more stringent" underwriting standards for subprime mortgages than banking regulators currently require, according to the comptroller of the currency.Comptroller John Dugan told a House panel that the bill (H.R. 3915) establishes "brighter and stricter" rules for subprime lending than the federal regulators have issued for banks and would restrict the supply of subprime credit. To qualify for the safe harbor, subprime loans must meet an ability-to-repay standard, income must be documented, debt-to-income ratios cannot exceed 50%, and the loan must be underwritten to the fully indexed rate, including insurance and taxes. The Mortgage Bankers Association is urging House Financial Services Committee Chairman Barney Frank, D-Mass., to provide more flexibility. "We strongly recommend that Congress carefully consider the potential impact of these safe harbors before hard-wiring them into the law," MBA senior vice president Kurt Pfotenhauer testified.