The Non-Qualified-Mortgage Conundrum

Abstract

In the midst of the painfully slow recovery from the financial crises and the promulgation of regulations implementing the “ability to repay” and “risk retention” rules mandated by the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010, the availability of residential mortgage credit to American consumers, especially those with blemished credit histories, has shrunk dramatically. Has the consumer finance industry overreacted to the ability-to-repay and risk retention regulations enacted under Dodd–Frank? This article examines whether the consumer finance industry should consider making loans that fall outside the “qualified mortgage” and “qualified residential mortgage” safe harbors and discusses the risks and rewards to the industry for pushing the boundaries of these Dodd–Frank parameters.