On January 29, 2015 the Consumer Finance Protection Bureau (CFPB) proposed several changes to its mortgage lending rules which would apply to small creditors who lend money to those in rural and underserved communities. The amendments are an attempt to address the collateral consequences of strict regulations enacted in January 2013 pursuant to the Dodd-Frank Act.
When initially adopted, many criticized the CFPB’s mortgage rules for defining a “rural” or “underserved” community too narrowly. In response, by May 2013 the CFPB allowed all small creditors, regardless of whether they operated in rural or underserved areas, a grace period by which they could make balloon-payment qualified mortgages. The CFPB’s new proposal is an attempt to address feedback it received regarding its mortgage rules, while helping small creditors provide loans to their communities during the implementation of any changes.
Under the CFPB’s proposed amendments, the definition of a rural community would be expanded to include any census block which is not in an urban area as defined by the U.S. Census Bureau. To determine whether a creditor qualifies as a rural or underserved creditor, the CFPB would only consider the small creditor’s activities from the previous year, as opposed to the current three year lookback period. The proposal would additionally create safe harbor provisions to protect small creditors while they determine whether their community qualifies as rural or underserved.
The definition of a small creditor would be expanded to allow loan originations four times the current limitation, from 500 to 2000 first-lien mortgage loans per year. This number would exclude any portfolio loans of the creditor and its affiliates. However, the assets of the creditor’s mortgage-originating affiliates would be included in the current $2 billion asset limit used to qualify for small creditor status. Any creditor who exceeds the origination limit or asset limit would be given a grace period to operate as a small creditor for any mortgage applications of the current calendar year prior to April 1, or if a creditor no longer lends to a rural or underserved community. And, small creditors would be given additional lead time to make balloon-payment qualified mortgages or balloon-payment high qualified mortgages to rural and underserved communities, regardless of where they operate, for applications received before April 1, 2016.
The CFPB’s proposal emphasizes the need for common-sense flexibility to provide communities with the credit they need, while allowing enough time for small creditors to make any necessary changes to their business practices. The CFPB is seeking feedback on its amended rules until March 30, 3015.