A game of semantics.

Author:Desmond, John M.

An opening (fictitious) statement by plaintiff's counsel in Jones v. Big Bank, regarding ability-to-repay (ATR) violations, Feb. 1, 2017:

"Ladies and gentlemen of the jury, you have been called here today to right a grave wrong perpetrated on my client, Mr. Jones, by Big Bank. Three years ago, Mr. Jones applied for a home mortgage and was told he could lower his interest rates by paying 2 discount points. Fortunately for Mr. Jones, when he was unable to pay the mortgage and came to me, I discovered that not only does he have a defense to foreclosure, but a cause of action against Big Bank. [paragraph] "What we will prove to the members of the jury during this trial is that, in fact, Mr. Jones' rate would have actually been lower had it not been for something Big Bank calls 'loan-level price adjustments [LLPA]'--fees that Big Bank cannot pass on to a borrower if it causes the total points and fees to exceed 3 percent of the loan and the lender seeks to originate a Qualified Mortgage [QM]. [paragraph] "Because Big Bank did not include LLPAs in points and fees, I will argue that it misled my client and the investors to whom Big Bank sold the mortgage, by claiming incorrectly that the loan was a Qualified Mortgage [QM] when it was not. [paragraph] "The attorneys for Big Bank will tell you that the points charged were bona fide, but in reality this is a smokescreen for saddling my client with fees that were only incurred because of pricing adjustments imposed by Fannie Mae and agreed to by Big Bank. We will show you Consumer Financial Protection Bureau [CFPB] regulations that clearly informed Big Bank that these LLPAs could not be included in the 3 percent cap. [paragraph] "Therefore, kindly award my client the statutory penalties that include all the finance charges, including interest, that my client has paid to Big Bank over the past three years, along with all my attorney's fees and costs. And don't worry too much about my client; he will be living in the house for a long time."

The Consumer Financial Protection Bureau's Qualified Mortgage rule applies to all residential mortgages originated after Jan. 10, 2014. In general, the rule provides lenders protection against legal claims that a mortgage loan violates the ability-to-repay regulations for mortgage loans that meet certain requirements.

QM loans that are not higher-priced and meet the QM requirements fall into a safe harbor and are entitled to a conclusive presumption that the lender...

To continue reading