Reg Z QM – What is the difference between safe harbor and rebuttable presumption in terms of liability protection?

Compliance > Regulation Z - TILA > Ability to Repay / Qualified Mortgages
Q:  What is the difference between safe harbor and rebuttable presumption in terms of liability protection?
 
A:  QMs can receive two different levels of protection from liability. Which level they receive depends on whether the loan is higher-priced or not.
 
  • Safe harbor
QMs that are not higher-priced have a safe harbor, meaning that they are conclusively presumed to comply with the ATR requirements. 
 
Under a safe harbor, if a court finds that a mortgage you originated was a QM, then that finding conclusively establishes that you complied with the ATR requirements when you originated the mortgage.
 
For example, a consumer could claim that in originating the mortgage you did not make a reasonable and good-faith determination of repayment ability and that you therefore violated the ATR rule. If a court finds that the loan met the QM requirements and was not higher-priced, the consumer would lose this claim.
 
The consumer could attempt to show that the loan is not a QM (for example, under the General QM definition that the DTI ratio was miscalculated and exceeds 43 percent), and therefore is not presumed to comply with the ATR requirements. However, if the loan is indeed a QM and is not higher-priced, the consumer has no recourse under this regulation.
 
  • Rebuttable presumption
QMs that are higher-priced have a rebuttable presumption that they comply with the ATR requirements, but consumers can rebut that presumption. 
 
Under a rebuttable presumption, if a court finds that a mortgage you originated was a higher-priced QM, a consumer can argue that you violated the ATR rule. However, to prevail on that argument, the consumer must show that based on the information available to you at the time the mortgage was made, the consumer did not have enough residual income left to meet living expenses after paying their mortgage and other debts.
 
The rebuttable presumption provides more legal protection and certainty to you than the general ATR requirements, but less protection and certainty than the safe harbor.
 
 
 
ADDITIONAL INFORMATION – CFPB ATR/QM Compliance Guide - http://files.consumerfinance.gov/f/201603_cfpb_atr-qm_small-entity-compliance-guide.pdf
 

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