The Consumer Financial Protection Bureau on Monday finalized several changes to its mortgage rules to help promote responsible lending by small creditors, particularly in rural and underserved areas. 

The changes are aimed at growing the number of financial institutions that can offer certain types of mortgages in rural and underserved areas. Creditors will be given time to adjust their business practices to comply with the rules, according to the CFPB.

The definition of "small creditor" is being expanded by raising loan origination limits from 500 first-lien mortgage loans to 2,000. Loans held in portfolio by a creditor and its affiliates are excluded.

The current asset limit for small-creditor status, currently set at less than $2 billion in total assets as of the end of the previous calendar year, was not changed but the assets of the creditor’s mortgage-originating affiliates will be included in calculating whether a creditor is below the limit. 

Key points include:

  • Expand the definition of rural areas: Along with counties that are considered rural under the CFPB’s mortgage rules, the final rule expands the definition to include census blocks that aren't in an urban area as defined by the U.S. Census Bureau. Two new safe harbors are being added for determining whether a property meets the definition of rural. A creditor will be able to rely on an automated address look-up tool available on the Census Bureau’s website or on a new automated tool that will be provided on the CFPB's website.
  • Provide grace periods for small creditor and rural or underserved creditor status: Creditors that exceed the origination limit or asset-size limit in the preceding calendar year are allowed to operate, in certain circumstances, as a small creditor concerning mortgage transactions with applications received before April 1 of the calendar year. The final rule creates a similar grace period for creditors that no longer operate predominantly in rural or underserved areas during the preceding calendar year. 
  • Create a one-year qualifying period for rural or underserved creditor status: The final rule adjusts 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. 
  • Provide additional implementation time for small creditors: Eligible small creditors currently are able to make balloon-payment Qualified Mortgages and balloon-payment high-cost mortgages regardless of where they operate, under a temporary exemption set to expire January 10, 2016. The final rule extends the period to include balloon-payment mortgage deals with applications received before April 1, 2016, giving creditors more time to understand how changes will affect their status.

The final rule, including changes and clarifications, will take effect January 1, 2016.
The CFPB issued several mortgage rules in early 2013, and most of them took effect in January 2014. Among those rules, the Ability-to-Repay rule is designed to protect consumers from irresponsible mortgage lending by requiring that lenders make a reasonable and good-faith determination that prospective borrowers have the ability to repay their loans. 

Under the Ability-to-Repay rule, a category of loans called Qualified Mortgages ban certain risky loan features for consumers and are presumed to comply with ability-to-repay requirements.

"The financial crisis was not caused by community banks and credit unions, and our mortgage rules reflect the fact that small institutions play a vital role in many communities," said CFPB Director Richard Cordray. "These changes will help consumers in rural or underserved areas access the mortgage credit they need, while still maintaining these important new consumer protections." 

 

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