State banking regulators are asking the Consumer Financial Protection Bureau to be flexible in its definition of a "rural" market when determining when a community bank is eligible to make a balloon loan.

Under its proposed lending guidelines, the CFPB has essentially banned balloon mortgages, but it gave an exemption to community banks in rural or underserved markets. Many loans in those markets do not meet the criteria for being sold on the secondary market and therefore are held in banks' portfolios.

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