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Consumer Bureau Considers Lawsuit Protection for Lenders in Some Foreclosure Suits

Posted Oct 16, 2012 6:35 AM CDT
By Debra Cassens Weiss

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The new Consumer Financial Protection Bureau is considering rules that would give lenders protection from some lawsuits contesting foreclosures.

The safe harbor rule would apply when lenders make certain high-quality loans, the Wall Street Journal (sub. req.) reports. Loans qualifying for protection may be those in which the borrower’s total debt is below a cap, based on a percentage of the borrower’s income, unidentified sources tell the newspaper.

Loans with higher interest rates that nonetheless meet the debt cap would receive less protection from lawsuits, the story says. In those cases, borrowers could allege the lender should have known they couldn’t make the mortgage payments.

The aim is to encourage mortgage loans to well-qualified borrowers, according to the story.

Michael Calhoun, president of the Center for Responsible Lending, told the Wall Street Journal the idea has merit. The approach "has the potential to both encourage safe loans and increase scrutiny of risky subprime loans," he said.

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