House Financial Services Subcommittee on Financial Institutions and Consumer Credit Hearing

Finally, where the creditor's affiliate writes the title insurance, the incentives for the creditor to increase arbitrarily the size of the loan are multiplied. Title insurance pricing increases with the size of the loan, even though the work does not increase and the risk, due to the widespread use of exclusions from coverage in the title insurance world, only increases marginally. Most commentators would agree that inflated loans contributed directly to the current economic crisis; creditors should not be encouraged to inflate loans.

Promoting transparency in rulemaking, as the Consumer Financial Bureau has done in reopening the comment period on the Qualified Mortgage rule, is appropriate and prudent.

In reopening the comment period, the Bureau sought comment only on the new information it had received, much of it obtained from ex parte communications, including extensive meetings with industry. n24 There is nothing inherently inappropriate about ex parte communications with the Bureau; indeed, the Bureau's receptiveness to such meetings should do much to allay industry concerns about potential surprises or missteps in the rulemaking. Nonetheless, it is appropriate where those ex parte communications go to the heart of difficult, complex, and important issues, as they do here, to give other stakeholders full notice of the content of those communications and an opportunity for further comment.

The stakes for the Qualified Mortgage definition are high. The definition of Qualified Mortgages likely will define the contours of mainstream mortgage lending for generations to come. Concerns about the balance between access to credit and protecting homeowners from unaffordable lending are complex. Moreover, much disastrous lending in the 1990s and early 2000s was done to under-served communities in the name of access to credit. In the wake of the collapse of the housing market, and unprecedented loss of wealth in communities of color, it is clear that not all credit is good credit and some credit can be worse than none. The terms of such a critical matter of national economic policy and basic economic justice must be openly debated in a transparent process. Concepts identified in ex parte conversations should not be adopted by the Bureau without public discussion in light of the important and complex process of setting the determination of ability to repay standards. There is a range of perspectives on these difficult issues and a full and open debate will best serve the public interest.

The Bureau has committed to issuing the rule on time. n25 It seems unlikely that this reopening of the comment period is the occasion for any delay in the issuance of the final rule. Mortgage markets should be reassured by the Board's candor and accessibility; markets are unlikely to be stymied merely by the greater transparency the Board afforded all stakeholders in reopening the comment period. Moreover, a final rule with greater clarity and basis will serve the mortgage markets well.

Both homeowners and the mortgage market are well served by standards that allow homeowners to challenge a lender's deliberate or egregious failure to make a reasonable determination of the borrower's ability to repay.

In writing the definition of ability to repay a mortgage loan, the CFPB will focus on the contours of loans that are likely to be affordable. But it is impossible for the CFPB to define affordability with perfect precision, for every homeowner, every creditor, every type of mortgage and every mortgage practice that might arise far out into the future. Creditors should be encouraged to make mortgages that meet the definition of a qualified mortgage, and those that do are entitled to a presumption that the loans meet the ability-to-pay requirement. But it would be a terrible mistake to create a safe harbor that is irrebuttable, regardless of whether the loan was foreseeably unaffordable by the creditor.

We cannot anticipate now all of the ways in which irresponsible lending practices could arise. When predatory lending became a problem in the 1990s, the Home Ownership Equity Protection Act (HOEPA) did its best to attack those practices. But the

HOEPA reforms were powerless to protect consumers from the new wave of mortgage "innovations."

Even more important than the details of any specific rule is getting the incentives right. Rulewriters will always be several steps behind the market. But if the incentives are in the right place, the rule will do its job even as new, unanticipated developments arise. The essential incentive for the mortgage market is the rule that every mortgage must be evaluated for affordability. A safe harbor that deems certain types of mortgages affordable no matter the circumstances will not build in incentives for creditors to ensure affordability. A rebuttable presumption, while still requiring a stiff uphill climb for homeowners, will provide a backstop to reckless lending. A rebuttable presumption rule with clarity will deliver what lenders need the most: clear guidelines about how to proceed in reviving the mortgage market. This clarity will minimize the main risk creditors have faced in this crisis, repurchase risk from the secondary market.

If the ability to repay rule provides a safe harbor, some creditors will focus on only the letter but not the spirit of the rule. It will leave the door open to known types of abusive lending and will predictably encourage the emergence of adjustable rate mortgages timed to reset at the end of six years instead of five. Creditors will find other ways of evading the protections of the ability to repay definition that we cannot anticipate right now. The spirit of the rule is true ability to pay. If we want creditors to comply with that spirit, the general ability to pay requirement must apply even to loans that meet the specific contours of the ability to repay definition.

A safe harbor would shut the court house door to borrowers. Once there was a determination that a loan met the ability to repay standards, there would be no redress for could not afford it. There are many possible examples of these loans. For example, homeowners with limited residual income and high medical bills might have no residual income, even at a 31% DTI. In that circumstance, if ability to repay only required a 31% DTI, without residual income, the creditor would be free to engage in the purest form of asset-based lending and the homeowner would have no redress. Similar results would apply for any of the many possibilities in which a creditor extended credit, knowing that the borrower could not reasonably be expected to repay, unless the ability to repay definition specifically identified the precise circumstances posed by that case. Such micromanagement of credit decisions serves no one's interest and would be cumbersome to implement. With an irrebuttable safe harbor, creditors would be encouraged to ignore obvious warning signs so long as they were not listed as a criteria in the Bureau's rule. Predictably unaffordable loans would come with total legal insulation.

Finally, a safe harbor could interfere with state sovereignty and reduce the rights that consumers currently have under state laws to challenge reckless and bad faith underwriting. A safe harbor under Dodd-Frank would make it much more difficult for homeowners to raise state legal claims, such as fraud, where a creditor can show it has satisfied the ability to repay definition. A court might be inclined to view the satisfaction of such a standard as the last word on affordability (either as a matter of preemption or of persuasiveness). Moreover, some states have statutes or developed case law that provide that any loan that satisfies the Truth in Lending Act per se complies with state law. Accordingly, it is essential that a rebuttable presumption be preserved so that unsustainable loans are not immune if they are unfair, deceptive or unconscionable.

It would be unwise and contrary to the purpose of the law to adopt a safe harbor. A safe harbor would upset Dodd-Frank's finely tuned balance of market incentives and market discipline.

A rebuttable presumption will not result in substantial litigation risk from borrowers.

Creditors will face no significant litigation risk from borrowers under a rebuttable presumption. Even if a loan is unaffordable from the start, exceedingly few homeowners will even find an attorney to assist them. The foreclosure crisis has brought the imbalance in access to representation into harsh light, as a number of local and state reports have found. The Brennan Center for Justice report, Foreclosures: A Crisis in Legal Representation, n26 found that the majority of homeowners in foreclosure went without representation. For example, in Stark County, Ohio, 86% of foreclosure defendants in 2009 were unrepresented. In Queens County, NY, 84% of defendants in foreclosure proceedings involving non-prime loans proceeded without full representation from November 2008 to May 2009. In Staten Island, 91% were unrepresented and 92% in Nassau County were unrepresented. In Maine, legal services providers found that only 6% of requests for help in connection with foreclosure "received the level of attention necessary to resolve the problem," leaving 94% without access to that kind of representation. n27

When borrowers manage to find an attorney, the facts will need to paint a pretty severe picture to overcome the presumption. And then, should a homeowner thread the needle and prevail, Dodd-Frank caps the damages at a relatively small amount in comparison to the value of the mortgage--three years of payments. n28

If a consumer claims that a loan is unaffordable, and if the loan meets the ability to repay standard, the homeowner will have the burden to demonstrate that the loan was not reasonably reviewed for affordability. Litigation burdens are very difficult to overcome, as the paucity of litigation under the existing higher cost mortgage rules demonstrates.

This is especially true when a party has satisfied the presumptive requirements of a statute, as creditors making loans under the qualified mortgage standard would. For example, the Truth in Lending Act provides a rebuttable presumption that the borrower has received the required notice of the right to cancel when the borrower signs an acknowledgment of receipt at closing. n29 Courts have often required homeowners to do more than assert the non-receipt of the documents, even at the pleading stage. n30 Borrowers typically only prevail ultimately in rebutting the presumption of receipt when they can establish a chain of custody of their closing documents akin to that required in criminal drug cases. n31

The ability to repay standard may create an even higher bar because the presumption will reference an agency determination of a complex process, the ability to repay test. Unlike the TILA acknowledgment of receipt, an ability to repay determination involves many interrelated components. Courts are likely to give great weight to the Bureau's determination of what is an affordable loan and will be unlikely to impose further requirements.

Moreover, as the Ninth Circuit has noted, "presumptions are not rebutted by allegations; they are rebutted by evidence." n32 The evidence of the lender's determination of a consumer's ability to repay will all be in the lender's hands. In order to demonstrate a case under a rebuttable presumption, homeowners will need to credibly allege, and then prove, that the lender did not make a reasonable determination of ability to repay. What the lender did or did not consider, as well as the ultimate basis for its decision, will always be information uniquely in the province of the lender, not the homeowner. Rare indeed will be the cases where a homeowner can allege and then prove that the lender did not reasonably determine that the borrower had an ability to repay.

Even without Dodd-Frank's protections, lenders who make unaffordable loans have been subject to litigation risk. Courts have recognized lending when there is no ability to repay as a per se unfair and deceptive act or practice. n33 This may be the case even where the loan was a refinancing of an earlier loan, itself unaffordable. n34 Failure to follow the basic precepts of underwriting for affordability and sustainability can subject the originating creditor, the assignee, or even the investment banks who facilitated the origination of the loans to liability. n35 These claims are usually brought under a range of state common-law theories. Rulemaking under Dodd-Frank may, in fact, reduce the litigation risk occasioned by unaffordable lending by delineating what is and is not a reasonable determination by the lender of the borrower's ability to repay.

Finally, a look at the actual numbers makes clear that borrower-driven litigation poses no significant threat to creditors. While comprehensive statistics are not available on mortgage-related litigation, the experience of the lawyers who represent homeowners is that most homeowner litigation is not proactive. Even when the litigation would be initiated by a consumer, it tends to be in reaction to an impending or existing foreclosure.

Consequently, the volume of foreclosure filings provides a reasonable proxy to put homeowner litigation in perspective. Furthermore, the litigation from the past few years would represent a high-water mark.

In relation to the size of the mortgage market and the apogee of mortgage litigation, the added risk from a Truth in Lending claim is vanishingly small.

Number of home loans made 2005-2010 n36 63.9 Million

Number of homes entering foreclosure during crisis (est.) n37 (Q107-Q211) 8 Million

Number of cases involving existing TIL rebuttable presumption in last 5 years n38 59

As percentage of homes entering foreclosure, above .00074%

Number of cases involving existing TIL rebuttable presumption scheduled for trial n39 35

As percentage of homes entering foreclosure .00044%

Another reasonable proxy for exposure to a TIL claim used in relation to foreclosure litigation would be rescission claims - one of the most important tools homeowners have to contest bad mortgage practices. Again, in context, the likely litigation risk is minimal overall.

Number of foreclosures initiated in 2010 (by OCC/OTS reporting services) n40 1.4 Million

Number of cases involving Truth in Lending & foreclosure 2010 904

Number of such cases also involving TIL rescission n41 660

2010 rescission cases as percentage of 2010 foreclosures filed .047%

Conclusion

Thank you for the opportunity to testify before the subcommittee today. Regulation of the mortgage market, as structured under Title XIV of the Dodd-Frank Act, is essential to our national economic security. Given the complexity of the modern mortgage market, rulemaking is best done via administrative rulemaking rather than legislation. Adjustments to the underwriting standards in Dodd-Frank are best done by the agencies with substantive expertise. Promoting transparency in rulemaking, as the Consumer Financial Bureau has done in reopening the comment period on the Qualified Mortgage rule, is appropriate and prudent. Both homeowners and the mortgage market are well served by standards that allow homeowners to challenge a lender's deliberate or egregious failure to make a reasonable determination of the borrower's ability to repay. A rebuttable presumption will not result in substantial litigation risk from borrowers. The regulatory process should move forward in order to restore fairness and vigor to the mortgage markets.

n1 The National Consumer Law Center, Inc. (NCLC) is a non-profit Massachusetts Corporation, founded in 1969, specializing in low-income consumer issues, with an emphasis on consumer credit. On a daily basis, NCLC provides legal and technical consulting and assistance on consumer law issues to legal services, government, and private attorneys representing low-income consumers across the country. NCLC publishes a series of eighteen practice treatises and annual supplements on consumer credit laws, including Truth In Lending (6th ed. 2007) and Cost of Credit: Regulation, Preemption, and Industry Abuses (3d ed. 2005) and Foreclosures (2d ed. 2007), as well as bimonthly newsletters on a range of topics related to consumer credit issues and low-income consumers. NCLC attorneys have written and advocated extensively on all aspects of consumer law affecting low-income people, conducted training for thousands of legal services and private attorneys on the law and litigation strategies to deal predatory lending and other consumer law problems, and provided extensive oral and written testimony to numerous Congressional committees on these topics. This testimony was written by Alys Cohen, Staff Attorney, and Diane E. Thompson, Of Counsel, NCLC.

n2 See, e.g., 74 Fed. Reg. 44,522, 44,540-44,541 (July 30, 2008) (discussing evidence that adjustable-rate mortgages were not appropriately underwritten); Wall Street and the Financial Crisis: The Role of High Risk Home Loans: Hearing Before the Subcomm. on Investigations of S. Comm. on Homeland Security and Governmental Affairs, 111th Cong. 2d Sess. 4 (2010) (memorandum by Sen. Carl Levin, Chair, & Sen. Tom Coburn, Ranking Minority Member) (noting lack of underwriting coupled with surging delinquencies in Washington Mutual's portfolio); Kurt Eggert, The Great Collapse: How Securitization Caused the Subprime Meltdown, 41 Conn. L. Rev. 1257, 1272-1284 (2009) (discussing studies documenting decline in underwriting of subprime loans); M. Diane Pendley, Glenn Costello & Mary Kelsch, Fitch Ratings, The Impact of Poor Underwriting Practices and Fraud in Subprime RMBS Performance (Nov. 28, 2007), available at www.fitchratings.com/corporate/reports/report_frame.cfm?rpt_id=356624 (noting the absence of adequate underwriting contributed significantly to the elevated default rates in 2007; Terwin Mortgage Trust Asset-Backed Certificates, Series Tmts 2004-11he, Terwin Advisors L.L.C., Seller, Merrill Lynch Mortgage Investors, Inc., Depositor, Prospectus Supplement dated Sept. 27, 2004, to Prospectus dated June 18, 2004, at S-39 (stating that seller only knows the underwriting guidelines used for approximately 32% of the loan pool).

n3 See, e.g., Office of Policy Dev. & Research, U.S. Dep't of Hous. & Urban Dev., Report to Congress on the Root Causes of the Foreclosure Crisis 33 (2010), available at www.huduser.org/portal/publications/hsgfin/foreclosure_09.html.

n4 See, e.g., Emigrant Mortg. Co., Inc., v. Fitzpatrick, 906 N.Y.S.2d 874, 881 (Sup. Ct. Suffolk Cty. 2010) (describing one such certification signed by a borrower certifying that the borrower had sufficient funds to repay the loan when the borrower's actual income was less than the monthly payment).

n5 See, e.g., 74 Fed. Reg. 44,522, 44,540, 44,541, 44,541 n.53 (July 30, 2008) (discussing prevalence of stated document loans and incentives for originators to make these loans, including inflated loan amounts, inflated interest rates, and ease of origination; recognizing that stated income loans did not accurately predict risk or ability to repay); Interagency Guidance on Nontraditional Mortgage Product Risks, 71 Fed. Reg. 58,609, 58,614 (Oct. 4, 2006) (discussing and cautioning against increasing reliance on "reduced documentation");Ruth Simon, James R. Hagerty & James T. Areddy, Housing Bubble Doesn't Scare Off Foreigners, Wall St. J., Aug. 24, 2005, at 1, 7 (reporting that 70% of subprime pools rated by Standard & Poors in the first half of 2005 had less-than-full documentation); Susan E. Barnes, Patrice Jordan, Victoria Wagner & David Wyss, Standard & Poor's, Standard & Poor's Weighs in on the U.S. Subprime Mortgage Market 12 (Apr. 5, 2007), available at www2.standardandpoors.com/spf/pdf/media/TranscriptSubprime_040507.pdf (20/-/30% of pools rated by Standard & Poors contain subprime loans with no documentation); Gov't Accountability Office, GAO No. 09-741, Home Mortgages: Provisions in a 2007 Mortgage Reform Bill (H.R. 3915) Would Strengthen Borrower Protections, but Views on Their Long-Term Impact Differ 19 (2009), available at www.gao.gov/new.items/d09741.pdf (increasing percentages of subprime loans had less than full documentation, ranging from 27% in 2000 to nearly 60% in 2007).

n6 See, e.g., McGlawn v. Pa. Human Relations Comm'n, 891 A.2d 757 (Pa. Commw. Ct. 2006) (broker created false income information for low-income borrowers); California v. Ameriquest (Cal. Super. Ct. Alameda County Mar. 21, 2006) (complaint, S. 10H) (Ameriquest fabricated income and assets), available at http://ag.ca.gov/newsalerts/cms06/06-005_0a.pdf; 74 Fed. Reg. 44,522, 44,541 (July 30, 2008)(noting that income was falsified).

n7 Comments of the National Consumer Law Center, et al., Regarding Proposed Regulations Relating to Unfair Trade Practices in Connection with Mortgage Lending 10 (Apr. 8, 2008), available at www.consumerlaw.org/issues/predatory_mortgage/content/HOEPACommentsApril08.pdf.

n8 See, e.g., 74 Fed. Reg. 44,522, 44,541 (July 30, 2008)(noting that creditors did not include tax and insurance payments in assessing ability to repay).

n9 74 Fed. Reg. 44,522, 44,541-44,542 (July 30, 2008).

n10 See, e.g., Assurance of Discontinuance, Commonwealth v. Morgan Stanley & Co., No. 10-2538, S. 20 (Mass. Super. Ct. June 24, 2010), available at www.mass.gov/Cago/docs/press/2010_06_24_ms_settlement_attachment3.pdf (recounting Morgan Stanley's predictions that nearly half of New Century's loans would become unaffordable at reset); Aames Mortgage Trust 2001-1 Mortgage Pass-Through Certificates, Series 2001-1, Aames Capital Corporation As Sponsor, Countrywide Home Loans, Inc., As Servicer, Prospectus Supplement to Prospectus Date March 13, 2001, S-10 (predicting high rates of prepayment at rate reset).

n11 See, e.g., 74 Fed. Reg. 44,522, 44,541 (July 30, 2008) (noting that "creditors were often extending credit based on an expectation that the house's value would increase rapidly"); Office of Policy Dev. & Research, U.S. Dep't of Hous. & Urban Dev., Report to Congress on the Root Causes of the Foreclosure Crisis 22/-/23 (2010), available at www.huduser.org/portal/publications/hsgfin/foreclosure_09.html (arguing that foreclosure crisis delayed by early--and expensive--prepayment of subprime loans as a method of managing unaffordable payments).

n12 OCC Advisory Letter 2000-7, Abusive Lending Practices 1 (2000), available at http://www.occ.gov/static/news-issuances/memos-advisory-letters/2000/advisory-letter-2000-7.pdf. Cf. U.C.C.C. [Sec.] 5-108(4)(a) (1974) (especially cmt. S. 4: selling goods to low-income consumers without expectation of payment, but with expectation of repossessing goods sold and reselling at a profit, is illustrative of unconscionable transaction).

n13 Gov't Accountability Office, GAO No. 09-848R, Characteristics and Performance of Nonprime Mortgages 9 (2009), available at www.gao.gov/new.items/d09848R.pdf (documenting increasing stated loan-to-value ratios; note that these do not account for falsified appraisals, which in many instances left homeowners completely underwater). See Yuliya Demyanyk, Fed. Res. Bank of Cleveland, Ten Myths About Subprime Mortgages (July 23, 2009), available at www.clevelandfed.org/research/commentary/2009/0509.cfm (arguing that the decline in home values did not cause the subprime mortgage crisis).

n14 Lee Tam-Blumenthal & Huxley Somerville, Fitch Ratings, U.S. Residential Mortgage Loan Representations and Warranties 2 (2008).

n15 See, e.g., Edward Golding, Richard K. Green & Douglas A. McManus, Imperfect Information and the Housing Finance Crisis 11 (Feb. 1, 2008), available at www.jchs.harvard.edu/publications/finance/understanding_consumer_credit/papers/ucc08-6_golding_green_mcmanus.pdf.

n16 See, e.g., Assurance of Discontinuance, Commonwealth v. Morgan Stanley & Co., No. 10-2538, S. 30 (Mass. Super. Ct. June 24, 2010), available at www.mass.gov/Cago/docs/press/2010_06_24_ms_settlement_attachment3.pdf (roughly a third of New Century's loans sampled for due diligence review did not meet New Century's underwriting guidelines); Wall Street and the Financial Crisis: The Role of High Risk Home Loans: Hearing Before the Subcomm. on Investigations of S. Comm. on Homeland Security and Governmental Affairs, 111th Cong. 2d Sess. 4 (2010) (memorandum by Sen. Carl Levin, Chair, & Sen. Tom Coburn, Ranking Minority Member) ("Despite fraud rates in excess of 58% and 83% . . ., no steps were taken to address the problems . . . ."); Office of Policy Dev. & Research, U.S. Dep't of Hous. & Urban Dev., Report to Congress on the Root Causes of the Foreclosure Crisis 38 (2010), available at www.huduser.org/portal/publications/hsgfin/foreclosure_09.html.

n17 Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, [Subsec.] 1411-1412, 1414, 124 Stat. 1376 (July 21, 2010), codified at 15 U.S.C. 1602(cc)(5) (definition of residential mortgage loan), 15 U.S.C. 1639c (ability to pay requirements).

n18 See, e.g., Villalobos v. Deutsche Bank National Trust Co. No. C09-1450-JCC (W.D. Wash. May 3, 2011), available at www.nclc.org/unreported; Commonwealth v. Fremont Inv. & Loan, 2008 WL 517279 (Mass. Super. Ct. Feb. 25, 2008), aff'd, 2008 WL 2312648 (Mass. App. Ct. May 2, 2008), aff'd, 897 N.E.2d 548 (Mass. 2008).

n19 75 Fed. Reg. 58,509 (Sept. 24, 2010), 12 C.F.R. [Sec.] 226.36(d),(e). Note the Board initially proposed to address the issue through disclosure regulations, 73 Fed. Reg. 1672 (Jan. 9, 2008), however the Board's own testing showed that disclosures would not effectively address the problem and that proposal was withdrawn, 73 Fed. Reg. 44,522, 44,563-44,565 (July 30, 2008).

n20 See, e.g., Florida Office of Insurance Regulation, An Analysis of Florida's Title Insurance Market: Three Studies that Provide a Comprehensive, Multi-Faceted Review of the Florida Title Insurance Industry (July 2006), available at http://www.floir.com/siteDocuments/FLTitleInsMkt.pdf; Office of Pol'y & Dev., Dep't. of Hous. & Urban Dev., RESPA: Regulatory Impact Analysis and Initial Regulatory Flexibility Analysis, FR-5180-P-01: Proposed Rule to Improve the Process of Obtaining Mortgages and Reduce Consumer Costs, 2-24 to 2-43 (2008); Susan Woodward, U.S. Department of Housing and Urban Development, Office of Policy Development and Research, A Study of Closing Costs on FHA Mortgages (2008), available at www.urban.org/UploadedPDF/411682_fha_mortgages.pdf.

n21 See, e.g., Florida Office of Insurance Regulation, An Analysis of Florida's Title Insurance Market: Three Studies that Provide a Comprehensive, Multi-Faceted Review of the Florida Title Insurance Industry (July 2006), available at http://www.floir.com/siteDocuments/FLTitleInsMkt.pdf.

n22 See, e.g., Johnson v. Banc One Acceptance Corp., 278 F. Supp. 2d 450 (E.D. Pa. 2003) (rate-setting bureau's rates only applicable to member companies).

n23 See, e.g., Fields v. Option One Mortg. Corp., 2008 WL 2553030 (3d Cir. June 27, 2008); Chiles v. Ameriquest Mortg. Co., 551 F. Supp. 2d 393 (E.D. Pa. 2008); Madera v. Ameriquest Mortg. Co. (In re Madera), 388 B.R. 586 (E.D. Pa. Nov. 8, 2008); Davis v. Deutsche Bank Nat'l Trust, 2007 WL 3342398 (E.D. Pa. Nov. 8, 2007); Escher v. Decision One Mortg. Co. (In re Escher), 369 B.R. 862 (Bankr. E.D. Pa. 2007); Glauser v. Deutsche Bank Nat'l Trust Co. (In re Glauser), 365 B.R. 531 (Bankr. E.D. Pa. 2007); Stump v. WMC Mortg. Corp. 2005 WL 645238 (E.D. Pa. Mar. 16, 2005); Strong v. Option One Mortg. Corp. (In re Strong), 356 B.R. 121 (Bankr. E.D. Pa. 2004)

n24 Consumer Financial Protection Bureau, Notice of Reopening of the Comment Period, 77 Fed. Reg. 33,120, 33,121 (June 5, 2012).

n25 Consumer Financial Protection Bureau, Notice of Reopening of the Comment Period, 77 Fed. Reg. 33,120, 33,121 (June 5, 2012).

n26 Melanca Clark and Maggie Barron, Foreclosures: A Crisis in Legal Representation, Brennan Center for Justice, (Oct. 6, 2009) at 12-17.

n27 Nan Heald, Justice for Some, Report on Unmet Legal Needs in Maine. Pine Tree Legal Assistance.

n28 While the Federal Reserve Board's proposed rule notice discussed some concerns about risk associated with the longer timeline of a foreclosure defense, 76 Fed. Reg. 27390, 27453 (May 11, 2011), these damages still would be capped at three years. Moreover, it will be the exceedingly rare case where a homeowner who has made regular mortgage payments for years will be able to prevail in a claim that the original loan was unaffordable. While the Board notes that the presumption introduces some additional uncertainty due to the innate flexibility of underwriting guidelines, id., as noted above, clarity in the ability to repay guidelines would substantially address that concern. In addition, the Board observed that a safe harbor will substantially reduce incentives for creditors to make affordable loans.Id. Such a result would contravene the goal of the statute.

n29 15 U.S.C. [Sec.] 1635(c).

n30 See, e.g., In re Perks, 2011 WL 1298555 (Bankr. N.D. W. Va. Mar. 31, 2011); Fortune v. AM. Window & Siding Sys., Inc. (In re Fortune), 2010 WL 4053107 (Bankr. D. Kan. Oct. 13, 2010); In re.Hastings, 2010 WL 3909207 (Bankr. N.D. Ala. Sept. 30, 2010); Sias v. Washington Mut. Bank, 2010 WL 2103448 (E.D. Tenn. May 20, 2010); , 2010 WL 1487131 (N.D. OhioApr. 13, 2010); Douglas v. Wilmington Fin., Inc., 2009 WL 3852458 (N.D. Ill. Nov. 18, 2009); St. Hill. v. Tribeca Lending Corp., 2009 WL 691977 (E.D. Pa. Mar. 17, 2009); Abbott v. Washington Mut. Fin., Inc., 2008 WL 756069 (E.D. Pa. Mar. 20, 2008); Strang v. Wells Fargo, 2005 WL 1655886 (E.D. Pa. July 13, 2005); Hershey v. Deutsche Bank Nat'l Trust Co., 2005 WL 1420813 (D. Minn. June 16, 2005); Williams v. G.M. Mortg. Corp., 2004 WL 3704081 (E.D. Mich. Aug. 18, 2008); Parker v. Long Beach Mortg. Co., 534 F. Supp. 2d 528 (E.D. Pa.); Sewell v. Option One Mortg. Corp., 2007 WL 4355393 (E.D. Pa. Dec. 12, 2007); Oscar v. Bank One, N.A., 2006 WL 4018853 (E.D. Pa. Feb. 17, 2006); Evans v. Ameriquest Mortg. Co., 2003 WL 734169 (Mich. Ct. App. Mar. 4, 2003).

n31 See, e.g., Cooper v. First Gov't Mortg. & Investors Corp., 238 F. Supp. 2d 50 (D.D.C. 2002) (homeowner produed lockbox in discovery; homeowner had placed all documents in lockbox after closing); In re Jaaskelaninen, 391 B.R. 627, 642-43 (Bankr. D. Mas. July 7,2008), rev'd on other grounds, 407 B.R. 449 (D. Mass. 2009) (after reviewing detailed chain of custody of closing documents presented by borrowers noting that perfect chains of custody cannot be required in TIL cases because "A lender wuld never be satisfied with any chain of custody." (italics in original).

n32 Balderas v. Countrywide Bank, N.A.. 664 F.3d 787, 790 (9th Cir. 2011).

n33 See, e.g., Martinez v. Freedom Mortgage Team, Inc., 527 F. Supp. 2d 827 (N.D. Ill. 2007) ("Martinez is stuck in a loan he did not want and may not be able to pay."); Commonwealth v. Fremont Inv. & Loan, 2008 WL 517279 (Mass. Super. Ct. Feb. 25, 2008), aff'd, 2008 WL 2312648 (Mass. App. Ct. May 2, 2008), aff'd, 897 N.E.2d 548 (Mass. 2008); Emigrant Mortg. Co., Inc., v. Fitzpatrick, 906 N.Y.S.2d 874, 881 (Sup. Ct. Suffolk Cty. 2010)(finding allegations that the creditor "knew or should have known that [the homeowner] could not afford the terms of the agreement sufficiently states a claim for substantive unconscionability"). See also U.C.C.C. [Sec.] 5-108(4)(a) (1974) (one factor in determining unconscionability is belief by seller, lessor, or lender at consummation, that there is no reasonable probability of payment in full of the obligation by the consumer or debtor).

n34 See, e.g., Beneficial Mortgage Co. of Ohio v. Leach, 2002 WL 926759 (Ohio Ct. App. May 9, 2002) (issue of material fact existed as to whether lender's conduct in refinancing loan after borrower defaulted on a prior loan was unconscionable as defense to lender's foreclosure action; lender did not inform borrower that mortgage was variable rate, rate was potentially much greater than prior mortgage on house, loan agreement was one of adhesion, lender purportedly threatened borrower with "other action" if she failed to sign the new note and mortgage, and borrower was in a worse financial position after refinancing); Vern Countryman, Improvident Credit Extensions, 27 Me. L. Rev. 1 (1975); Hersbergen, The Improvident Extension of Credit as an Unconscionable Contract, 23 Drake L. Rev. 225 (1974).

n35 See Assurance of Discontinuance, Commonwealth v. Morgan Stanley & Co., No. 10-2538 (Mass. Super. Ct. June 24, 2010), available at www.mass.gov/Cago/docs/press/2010_06_24_ms_settlement_attachment3.pdf; Settlement Agreement, Mass. Att'y Gen. & Goldman Sachs & Co. (May 7, 2009), available at www.mass.gov/Cago/docs/press/2009_05_07_goldman_settlement.pdf; Villalobos v. Deutsche Bank National Trust Co. No. C09-1450-JCC (W.D. Wash. May 3, 2011), available at www.nclc.org/unreported. (denying motion to dismiss claims against trustee of securitized trust and the securitizer, Barclay's Capital).

n36 Sum of home purchase, refinance and home improvement home loan activity reported under HMDA for 2005-2010,. Robert B. Avery, et al, The Mortgage Market in 2010: Highlights from the Data Reported Under the Home Mortgage Disclosure Act , Table 3, p. 42 (forthcoming). The Board estimates that HMDA data covers 90=95% of FHA lending and 75-85% of other first lien home loans. Id at 1, note 2.

n37 Center for Responsible Lending calculations based on MBA National Delinquency Survey, scaled to account for MBA's 85% market coverage.

n38 Comment of Mortgage Bankers Association Proposed Rule, Docket No. R-1417 (Ability to Repay and Qualified Mortgage) (July 22, 2011).

n39 Id.

n40 Sum of 2010 quarterly figures from OCC and OTS Mortgage Metrics Report, First Quarter 2011, Tabl3 38, p. 43.

n41 NCLC calculation from Westlaw Search, October 6, 2011. Of the 904 cases, 352 were pro se.

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