Consumer Fraud Protection Bureau Considers Giving Fraud Immunization to Mortgage Lenders

[phantom power]

The Consumer Financial Protection Bureau may relent to a bipartisan desire to provide proactive legal immunity to mortgage lenders who originate qualified mortgages under a new rule from the Dodd-Frank law. Lenders who meet certain conditions on a mortgage they sell would get safe harbor, immunizing them from any private right of action over inaccuracies or fraudulent behavior associated with the mortgage.

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The industry assumed last year that lenders would get a shield from liability on qualified mortgages. But the statute always granted an undefined set of protections from liability, presumably just on the concept of ability to repay, as stated above.

But there’s no real reason to provide this gift to the mortgage industry for doing their job. Mortgages happen to be more profitable than ever; the spread between what lenders get for selling loans in the secondary market and what they charge in an interest rate to a borrower have never been higher. Every major bank that reported earnings this quarter so far showed that their mortgage business brought in massive profits. Lenders will be enticed to sell qualified mortgages because there’s lots of money to be made in qualified mortgages.

But lenders want something more. They want to basically short-circuit the judicial foreclosure process as much as possible, getting a blanket safe harbor for as many qualified mortgages as possible. Liability wasn’t determined specifically in the statute, so the rule has some leeway here. The Mortgage Bankers Association is quoted in the WSJ piece as seeking protections for subprime loans as well as higher-quality ones.

http://news.firedoglake.com/2012/10/16/cfpb-considering-giving-blanket-safe-harbor-protections-on-most-qualified-mortgages/

[Egalitarian Thug]

1. What could possibly go wrong? K&R