This bill would create a safe harbor for lenders, such as banks and credit unions, that hold residential mortgages on their balance sheet after origination and all of their prepayment penalties comply with certain limitations. The residential mortgages would not meet the definition of a qualified mortgage, meaning that:
The borrower’s debt to income ratio exceeds 43 percent;
The total principal of the loan could grow each year, which is known as negative amortization;
The borrower could be allowed to pay only the interest on a mortgage;
The borrower has limited documentation.
The safe harbor would shield lenders from lawsuits related to failure to comply with requirements related to residential mortgages as long as they meet the above criteria.
Mortgage originators would also be protected by the safe harbor for steering a consumer to a residential mortgage loan if:
The lender is a depository institution and has informed the mortgage originator that it intends to hold the loan on its balance sheet for the life of the loan;
The mortgage originator informs the consumer that the creditor intends to do so.