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CFPB Expands Rural & Small Creditor Definitions
As it said it would, the Consumer Financial ProtectionrnBureau (CFPB) has taken steps to assist small lenders, particularly those inrnrural areas, comply more easily with the new mortgage rules that took effect atrnthe beginning of last year. Changes werernproposed on Thursday to the ability-to-repay rule and its category of loansrncalled Qualified Mortgages (QM) which CFPB said would, if enacted, increase thernnumber of financial institutions able to offer certain types of mortgages inrnrural and underserved areas and help small creditors adjust their businessrnpractices to comply with the new rules.</p
Ability-to-repay requires that lendersrngenerally make a reasonable and good faith determination that a borrower isrnable to pay back a loan. Loans thatrnqualify as QMs are presumed to comply with ability-to-repay requirementsrnbecause of that category’s laundry list of prohibited risky loan features. </p
Because compliance with either abilityrnto repay or QM presents particular changes for small and/or rural creditorsrnthey are allowed certain exceptions to the CFPB rules. For instance, a provision in the ability-to-repayrnrule extends Qualified Mortgage status to loans that small creditors hold inrntheir own portfolios, even if consumers’ debt-to-income ratio exceeds 43rnpercent. Small creditors in rural or underserved areas can originate QualifiedrnMortgages with balloon payments even though balloon payments are otherwise notrnallowed. Also, under the Bureau’s Escrows rule, eligible small creditors thatrnoperate predominantly in rural or underserved areas are not required tornestablish escrow accounts for higher-priced mortgages.</p
CFPB says it has monitored the mortgagernmarket and has sought public feedback on these rules and in May of 2013 said itrnwould study whether the definitions of rural and underserved should be adjusted. In May 2014 the Bureau requested comments onrnthe limit of originations that determined small creditor status. The following proposed changes reflect therninformation CFPB has gathered. </p<ul class="unIndentedList"<liThernloan origination limit for small-creditor status would be raised from 500rnfirst-lien mortgage loans to 2,000 and would not count loans held by therncreditor or its affiliates in its portfolio. </li</ul<ul type="disc"
CFPB said there are other small orrntechnical changes included in the proposal which can be read in its entirety onrnCFPB’s website. The Bureau is inviting publicrncomment on the changes and these will be received until March 30, 2015.
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