CFPB Leaning Toward Safe Harbor?

October 16, 2012 at 6:59 am Leave a comment

The Consumer Financial Protection Bureau (CFPB) is leaning toward providing “full legal protection” to lenders who provide qualified mortgages, according to an article in the Wall Street Journal.  If true, this would be an important victory for lenders including credit unions that have argued that they should be given a safe harbor for providing mortgages that comply with Dodd-Frank’s underwriting requirements.

Under Dodd-Frank, Congress intended to give lenders added legal protection in return for meeting certain underwriting requirements.  However, when the Federal Reserve Board initially proposed regulations, it concluded it was unclear whether lenders that provided qualified mortgages should be presumptively protected from legal liability for mortgages that go bad, or were intended to be given full legal protection (i.e. a safe harbor).   As I pointed out in a recent blog, Director Cordray suggested to the Senate Banking Committee that he was skeptical of the value of a safe harbor since lenders could still be sued over whether or not a bank’s actions qualified it for receiving full legal immunity from lawsuits.  Consequently, today’s article would seem to signal an evolution in the CFPB’s thinking.

If it does represent a change, it would be a rare victory for lenders seeking to shape the first round of proposals coming from the CFPB.  To his credit, Director Cordray has been refreshingly frank in acknowledging that poorly drafted regulations could have the unintended consequence of hurting the lending market.  Even with low interest rates, mortgage standards remain tight, with a disproportionate number of refinancings going to well qualified borrowers.

Entry filed under: Advocacy, Legal Watch, Regulatory. Tags: , , .

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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