CFPB Issues Rule on Mortgage Guidelines for Special Classes of Creditors

by Reed Smith
Contact

The Consumer Financial Protection Bureau (“CFPB”) this week issued a final rule making a series of changes to its mortgage guidelines for small creditors and creditors in rural and underserved communities.

In a series of rulemakings issued pursuant to the Dodd-Frank Act, the CFPB has applied special standards for mortgages extended by small creditors and creditors operating in rural and underserved communities.  In these rulemakings, the CFPB stated that it likely would revisit its regulatory definitions of small creditors and creditors operating in rural and underserved communities.  Several rules issued by the CFPB, including those related to escrow requirements for higher-priced mortgage loans (“HPML”), ability-to-repay requirements (“ATR”), and requirements under the Home Ownership and Equity Protection Act (“HOEPA”), contain these terms and are thus subject to the CFPB’s regulatory definitions. 

Under the final rule issued Sept. 21, covered creditors will see the following changes:

The definition of rural will be expanded to include census blocks that are not in an urban area as defined by the Census Bureau, effectively adding a second prong to the definition.  This is a major change from the current definition, under which a property must be located in a county defined as rural to qualify for certain exemptions.  With the above rule, a property may be defined as rural either by the county-based approach or by the census-block approach.  Additionally, creditors will be allowed to rely on automated tools provided on the Census Bureau’s website to determine whether properties are located in rural or underserved areas and whether a particular property is located in an urban area.

  • The loan origination limit for small-creditor status will be raised from 500 first-lien covered transactions to 2,000 first-lien covered transactions.  This applies to loans originated by a creditor or its affiliates. Of additional significance, covered transactions will exclude loans held in portfolio by a creditor and its affiliates.
  • The $2 billion asset limit for small-creditor status will now encompass both a creditor’s assets and the assets of its affiliates that originate mortgage loans – a new “anti-evasion” measure designed to stop larger entities from structuring transactions to allow its affiliates to receive small creditor status. In calculating assets for the asset limit, a creditor will count only the assets of those affiliates that regularly extended first-lien covered transactions and not the assets of other affiliates.  A creditor that exceeded that asset limit in the previous calendar year may operate as a small creditor for purposes of transactions for which applications were received before April 1 of the current calendar year, under some circumstances. This grace period is available to creditors that exceeded the asset limit in the preceding calendar year but had not exceeded it in the calendar year before the preceding calendar year.
  • The time period for determining whether a creditor operates predominantly in a rural or underserved area has changed from any of the three preceding calendar years to only the immediately preceding calendar year.  As with small-creditor status, there is a grace period for creditors that did not receive the status of a creditor serving rural or underserved areas in the preceding calendar to operate under this status for purposes of transactions for which applications were received before April 1 of the current calendar year.  As stated in the final rule, “a creditor could find out on or close to December 31st that it was not operating predominantly in rural or underserved areas during that calendar year,” and such a creditor could not easily shift its practices to apply to comply with HPML standards.  Accordingly, the new rule allows creditors to rely on transactions from either the preceding calendar year or the next-to-last calendar year when making a higher-priced mortgage before April 1.
  • Creditors who established escrow accounts to comply with the higher-priced mortgage loan escrow requirement may receive an exemption from that requirement, available to small creditors operating in rural and underserved areas, if they are now eligible for the exemption under the expanded definitions of small creditor and creditor operating in rural and underserved areas.
  • The rule creates a four-month extension for a current transition period that allows some small creditors to make balloon-payment qualified mortgages and balloon-payment high-cost mortgages –  as currently defined under the CFPB’s mortgage rules – regardless of whether they operate predominantly in rural or underserved areas.  The new transition period will include covered transactions for which the application was received before April 1, 2016, rather than covered transactions consummated on or before January 10, 2016.

The final rule will take effect January 1, 2016.

Written by:

Reed Smith
Contact
more
less

Reed Smith on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.