An effort by some congressional lawmakers to let mortgage lenders off the hook for violating rules and offering shoddy mortgages to consumers is an irresponsible appeal that could upend much-needed mortgage reforms before they even take effect.
Led by U.S. Rep. Shelley Capito, (R-W.Va.), 108 lawmakers sent a letter to Consumer Financial Protection Bureau (CFPB) Director Richard Cordray, arguing for legal immunity for mortgage lenders. The lawmakers were commenting on a proposed rule for determining borrowers’ “ability-to-repay” and the definition of a qualified mortgage, required under the 2010 Dodd–Frank Wall Street Reform and Consumer Protection Act.
The proposed rule leaves open the question of legal liability for bad practices. The bureau must decide whether to allow mortgage lenders to be completely shielded from lawsuits, i.e. give them a “safe harbor,” or whether to protect them with a standard that presumes their compliance with the rules, but gives vulnerable borrowers the opportunity to provide evidence of the lenders’ wrongdoing.
Talk about short memories.
It was just five years ago that the U.S. economy imploded partly because toxic mortgages were given to mostly unaware borrowers. Mortgage lenders were able to hide their untenable risk-taking from the public and government oversight until it was too late. This irresponsible behavior led to the shutdown of large financial institutions, record home foreclosures and high unemployment. Now, unbelievably, lobbyists have convinced some lawmakers that bankers should be shielded from lawsuits, returning us to that place where perilous actions would remain in the dark and borrowers would be barred from seeking redress in court for their lenders’ wrongdoing.