Consumer Financial Protection Bureau Director Richard Cordray told the House Financial Services Committee this week that even if the CFPB adds a safe harbor provision to its qualified mortgage rule, lenders would still be vulnerable to lawsuits challenging whether they correctly determined a borrower's ability to repay the loan.
Cordray called safe harbor a mirage and a bit of a marketing concept when responding to questions from Rep. Brad Sherman (D-Calif.), at Thursday's hearing, saying, "Even safe harbor isn't safe. You can always be sued for whether you meet the criteria or not to get into the safe harbor."
Rep. Michael Grimm (R-N.Y.) followed Sherman, asking Cordray what effect he thinks the rule would have on the availability of credit to consumers. Cordray said the bureau is trying to avoid an "unfortunate side effect" of drying up mortgage credit availability.
"If we write a rule and find it has unduly restricted access to credit, we will go back and rewrite it," he said.
Instead, Cordray said, the bureau will draw "clear, bright lines" into the legislation that will "discourage and minimize" litigation.
Per the Dodd-Frank Act, the CFPB will likely choose between two provisions for lenders: a rebuttable presumption provision that would allow homeowners to introduce evidence in court challenging whether the lender correctly determined a borrower's ability to repay the loan, or a safe harbor, which allows a judge to determine if the lender met the qualified mortgage rule and if so, dismiss the suit early. The CFPB is expected to issue the final rule on qualified mortgages in January 2013.
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