As it said it would, the Consumer Financial Protection
Bureau (CFPB) has taken steps to assist small lenders, particularly those in
rural areas, comply more easily with the new mortgage rules that took effect at
the beginning of last year. Changes were
proposed on Thursday to the ability-to-repay rule and its category of loans
called Qualified Mortgages (QM) which CFPB said would, if enacted, increase the
number of financial institutions able to offer certain types of mortgages in
rural and underserved areas and help small creditors adjust their business
practices to comply with the new rules.
Ability-to-repay requires that lenders
generally make a reasonable and good faith determination that a borrower is
able to pay back a loan. Loans that
qualify as QMs are presumed to comply with ability-to-repay requirements
because of that category’s laundry list of prohibited risky loan features.
Because compliance with either ability
to repay or QM presents particular changes for small and/or rural creditors
they are allowed certain exceptions to the CFPB rules. For instance, a provision in the ability-to-repay
rule extends Qualified Mortgage status to loans that small creditors hold in
their own portfolios, even if consumers’ debt-to-income ratio exceeds 43
percent. Small creditors in rural or underserved areas can originate Qualified
Mortgages with balloon payments even though balloon payments are otherwise not
allowed. Also, under the Bureau’s Escrows rule, eligible small creditors that
operate predominantly in rural or underserved areas are not required to
establish escrow accounts for higher-priced mortgages.
CFPB says it has monitored the mortgage
market and has sought public feedback on these rules and in May of 2013 said it
would study whether the definitions of rural and underserved should be adjusted. In May 2014 the Bureau requested comments on
the limit of originations that determined small creditor status. The following proposed changes reflect the
information CFPB has gathered.
loan origination limit for small-creditor status would be raised from 500
first-lien mortgage loans to 2,000 and would not count loans held by the
creditor or its affiliates in its portfolio.
- The current asset limit for
small-creditor status would remain at less than $2 billion (adjusted
annually) in total assets as of the end of the preceding calendar year.
However, the proposal would include the assets of the creditor’s
mortgage-originating affiliates in calculating whether a creditor is under
- The proposal would expand the
definition of rural areas to include census blocks that are not in an
urban area as defined by the Census Bureau.
- Creditors that exceeded the origination limit or
asset-size limit in the preceding calendar year would be permitted a grace
period and allowed to continue to operate as a small creditor in certain
circumstances with respect to mortgage transactions with applications
received prior to April 1 of the current calendar year. The proposal would
create a similar grace period for creditors that no longer operated
predominantly in rural or underserved areas during the preceding calendar
- The proposal would adjust the time period used in
determining whether a creditor is operating predominately in rural or
underserved areas, from any of the three preceding calendar years to the
preceding calendar year.
- The temporary exception
allowing eligible small creditors to make balloon-payment Qualified Mortgages and
balloon-payment high-cost mortgages regardless of where they operate is
scheduled to expire on January 10, 2016. CFB proposes to extend that
exception to include balloon-payment mortgage transactions with
applications received before April 1, 2016, giving creditors more time to
understand how any changes will affect their status, and to adjust their
CFPB said there are other small or
technical changes included in the proposal which can be read in its entirety on
CFPB’s website. The Bureau is inviting public
comment on the changes and these will be received until March 30, 2015.