RSSThe Consumer Financial Protection Bureau issued an interim final rule on March 22 which will broaden special provisions for small creditors that operate in rural or underserved areas.
“The Consumer Bureau today has acted to implement the recent law that extends to more small creditors the specific provisions for operating in rural or underserved areas,” said CFPB Director Richard Cordray. “This rule provides broader eligibility for lenders serving those areas to originate balloon-payment qualified and high-cost mortgages.”
The new rule, which takes effect March 31, 2016, implements the Helping Expand Lending Practices in Rural Communities (HELP) Act which was signed into law by President Obama last year.
In 2013, the CFPB issued several mortgage rules − Ability-to-Repay and Qualified Mortgage Rule − which took effect in January 2014. The rules gave a legal safe-harbor to “qualified mortgages,” which cannot include certain features such as balloon payments.
Under the 2013 rules only a restricted set of small banks, as defined by the CFPB, serving rural and underserved areas, as defined by the CFPB, could receive a QM safe-harbor for mortgages with balloon payment features. The bureau later broadened the rural and underserved exemption because balloon mortgages are often the only product banks can offer in rural areas where secondary-market mortgages are not an option. Now, as required by the HELP law, the bureau is broadening the exemption again.
Prior to the HELP Act, a small bank was only eligible for an exemption if it operated predominantly in rural or underserved areas, as defined by the CFPB. Congress amended the statute to allow small banks to receive the exemption if it operates in a rural or underserved area, even if the rural area is not the predominant market for the bank’s operations.
Small banks that qualify for the HELP Act’s expanded exemption can originate QM loans with balloon payments as well as high-cost mortgages with balloon payments. They also are exempted from certain requirements of the bureau’s escrow rule.
