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CFPB Expands Rural & Small Creditor Definitions

by devteam January 31st, 2015 | Share

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"

  • The current asset limit forrn small-creditor status would remain at less than $2 billion (adjustedrn annually) in total assets as of the end of the preceding calendar year.rn However, the proposal would include the assets of the creditor’srn mortgage-originating affiliates in calculating whether a creditor is underrn the limit.</li</ul<ul type="disc"
  • The proposal would expand thern definition of rural areas to include census blocks that are not in anrn urban area as defined by the Census Bureau. </li</ul<ul type="disc"
  • Creditors that exceeded the origination limit orrn asset-size limit in the preceding calendar year would be permitted a gracern period and allowed to continue to operate as a small creditor in certainrn circumstances with respect to mortgage transactions with applicationsrn received prior to April 1 of the current calendar year. The proposal wouldrn create a similar grace period for creditors that no longer operatedrn predominantly in rural or underserved areas during the preceding calendarrn year.</li</ul<ul type="disc"
  • The proposal would adjust the time period used inrn determining whether a creditor is operating predominately in rural orrn underserved areas, from any of the three preceding calendar years to thern preceding calendar year.</li</ul<ul type="disc"
  • The temporary exceptionrn allowing eligible small creditors to make balloon-payment Qualified Mortgages andrn balloon-payment high-cost mortgages regardless of where they operate isrn scheduled to expire on January 10, 2016. CFB proposes to extend thatrn exception to include balloon-payment mortgage transactions withrn applications received before April 1, 2016, giving creditors more time torn understand how any changes will affect their status, and to adjust theirrn business practices.</li</ul

    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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    • About the Author

    devteam

    Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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