On September 21, the Consumer Financial Protection Bureau (CFPB) finalized several changes to its mortgage rules to increase the number of financial institutions able to offer certain types of mortgages in rural and underserved areas, and give small creditors time to adjust their business practices to comply with the rules.

The final rule, which takes effect on January 1, 2016, primarily deals with the Ability-to-Repay Rule, and will:

• Expand the definition of “small creditor”: The loan origination limit for small-creditor status will be raised from 500 first-lien mortgage loans to 2,000 and will exclude loans held in portfolio by the creditor and its affiliates.
• Include mortgage affiliates in calculation of small-creditor status: The final rule does not change the current asset limit for small-creditor status, which is set at less than $2 billion (adjusted annually) in total assets as of the end of the preceding calendar year. However, under the new rule the assets of the creditor’s mortgage-originating affiliates are included in calculating whether a creditor is under the limit.
• Expand the definition of “rural” areas: In addition to counties that are considered to be “rural” under the CFPB’s current mortgage rules, today’s final rule expands the definition of “rural” to include census blocks that are not in an urban area as defined by the US Census Bureau. The rule adds two new safe harbors for determining whether a property location meets the definition of rural. A creditor will be able to rely on an automated address look-up tool available on the Bureau’s website or on a new automated tool that will be provided on the Bureau’s website. The rule maintains the current safe harbor for creditors that choose to rely on the county lists available on the Bureau’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 will be allowed to operate, in certain circumstances, as a small creditor with respect to mortgage transactions with applications received prior to April 1 of the current calendar year. The final rule creates a similar grace period for creditors that no longer operated 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 are currently able to make balloon-payment qualified mortgages and balloon-payment high-cost mortgages regardless of where they operate, under a temporary exemption scheduled to expire on January 10, 2016. The final rule extends 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 final rule is available here.