In an effort to extend provisions to cover more community banks, credit unions, and other creditors, the Consumer Financial Protection Bureau today proposed several changes to its mortgage rules. This was done to facilitate responsible lending by small creditors, particularly in rural and underserved areas. “If finalized, the proposal issued today would 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.”
CFPB issued several mortgage rules in 2013, which were aimed at protecting consumers from irresponsible mortgage lending, mostly by requiring that lenders make a reasonable determination that prospective borrowers can actually repay their loans. These co-called “Ability-to-Repay” rules prohibit certain risky loan features from specific mortgages in order to enhance efforts for consumers to be able to repay their loans.
From CFPB’s press release this morning, today’s proposed amendment would:
- Expand the definition of “small creditor" from 500 first-lien mortgage loans to 2,000 and would exclude loans held in portfolio by the creditor and its affiliates.
- Include mortgage affiliates in calculation of small-creditor status. The proposal would include the assets of the creditor’s mortgage-originating affiliates in calculating whether a creditor is under the limit.
- Expand the current definition of “rural” areas to include census blocks that are not in an urban area as defined by the Census Bureau.
- Provide grace periods for small creditor and rural or underserved creditor status.
- Create a one-year qualifying period for rural or underserved creditor status.
- Provide additional implementation time for small creditors. Today’s proposal would extend that period 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 business practices.
A copy of the proposal is available at: