CFPB considers safe harbor to protect lenders from underwriting lawsuits

more+
less-

Mortgage lenders may get protection from lawsuits in connection with government-backed mortgages from the CFPB according to an article published in Bloomberg Businessweek. Under consideration are rules that provide a safe harbor from lawsuits in connection with underwriting mortgages for borrowers with debt-to-income ratios of less than 43 percent. According to Bloomberg, roughly 80 percent of loans backed by Fannie Mae, Freddie Mac or government insurers such as the Federal Housing Administration, would qualify.

The new regulations require lenders to confirm borrowers' ability to repay by verifying income. If the debt-to-income ratio exceeds 43 percent, some legal protections still may exist in the form of a rebuttable presumption that the loan was underwritten properly. However, lenders will likely be required to meet CFPB underwriting standards in order to take advantage of either the safe harbor or the rebuttable presumption.

A representative of the National Association of Realtors appeared relatively unimpressed by the safe harbor concession, stating that the industry needs strong protections for lenders or we may see continued tightening of available credit.

Bureau officials believe they will issue a final rule by the January 21, 2013 statutory deadline.