Alston & Bird Issues Client Advisory on First-Known Decision Rendered by U.S. District Court, S. D. of Ohio (Eastern Division) Challenging CFPB’s ATR/QM Standards Favors Mortgage Industry
On April 24, 2019, Alston & Bird Partner Stephen Ornstein issued a Client Advisory to inform clients of an apparent case of first impression decided by the U.S. District Court for the Southern District of Ohio (the “Court”), which rejected a consumer’s ability-to-repay defense that was raised in an attempt to prevent foreclosure of the consumer’s home.
The Client Advisory summarizes the Court’s decision in G. Ralph Elliott v. First Federal Community Bank: Bank of Bucyrus (Case No. 2:17-CV-42), decided on March 26, 2019, and notes that this case is instructive because, up to this point, there had been no defining judicial precedent interpreting the ability-to-repay/qualified mortgage (“ATR/QM”) regulations promulgated by the CFPB and effective as of January 10, 2014. In Elliott, the Court upheld the Defendant Bank’s determination made using the ATR/QM standards. The Plaintiff alleged that the Defendant Bank violated the Truth in Lending Act by failing to make “a reasonable and good faith determination based on verified and documented information” that the Plaintiff had a “reasonable ability to repay the loan.” The Court ultimately granted the Defendant Bank’s motion for summary judgment because it found that “there can be no genuine dispute of material fact that the Bank acted in compliance with their statutory obligations” as required by 15 U.S.C. § 1639c(a)(1).
The Client Advisory highlights that the essence of the court’s ruling was that, before making the loan, the Defendant Bank possessed ample evidence to document both that the loan met the CFPB’s qualified mortgage criteria and that the plaintiff had the ability to make the monthly mortgage payments. The CFPB regulations require that lenders make these ATR/QM determinations before or at loan consummation. Therefore, lenders are not required to anticipate—or be held responsible for—unforeseen events occurring after consummation that adversely impact their initial underwriting determination, such as divorce, serious illness, or loss of employment. Toward that end, the Elliot is a victory for the mortgage industry that is consistent with the purpose and intent of CFPB regulations.
The Client Advisory can be found here on our website.