So what are the Qualified Mortgage/Ability To Repay rules?

Dodd Frank says mortgage lenders, when making loans, must make a reasonable assessment of a consumer borrower’s ability to repay the loan according to its terms.

Seriously, that’s the proposed law: that a lender has to formally approve a borrower.

If it’s determined that a lender didn’t properly assess ability to repay, the lender’s potential liability includes fines, civil liability, class action lawsuits, and more.

Protection from this liability comes if a lender makes a so-called Qualified Mortgage loan. Which is a loan made according to strict and as yet undefined approval parameters, and also the loan must exclude features like: negative amortization, interest-only, balloon payments, loan terms exceeding 30 years, total points over 3%.

So if the lender approves a loan in the most painstaking, highly-documented manner it possibly can (meaning a five-inch-thick file for a couple who have had their same W2 jobs for 10 years, perfect credit, and getting a loan to buy a brand new single family home in the best neighborhood in town) AND the loan excludes the features above, then the lender might have a fighting chance of defending itself from a claim that they didn’t properly assess borrowers’ ability to repay.