Reg Z “Small Creditor” Proposal

The CFPB recently announced the issuance of a proposal that would increase the number of “small creditor” financial institutions able to offer certain types of mortgages in rural and underserved areas. The proposed rule will be open for public comment until March 30, 2015. You can submit your comments online (Note: the proposal provides other methods to submit comments as well).

Since issuing the mortgage rules that took effect in January 2014, the CFPB has been studying whether the definitions of rural and underserved should be adjusted and has proposed the following amendments:

Expand the definition of “small creditor”
The loan origination limit would be raised 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 current total asset limit of less than $2.060 billion (as of January 1, 2015, adjusted annually) would not change; however, it would include the assets of the creditor’s mortgage-originating affiliates 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, the definition of “rural” would be expanded to include census blocks that are not in an urban area as defined by the Census Bureau.

• Provide grace periods for small and rural or underserved creditor status
Creditors that exceeded the origination or asset-size limit in the preceding calendar year would be allowed to operate, in certain circumstances, as a small creditor with respect to mortgage transactions applications received prior to April 1st of the current calendar year.  The proposal would create 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 time period used in determining whether a creditor is operating predominately in rural or underserved areas would be changed from “any of the three preceding calendar years” to “the preceding calendar year.”

• Provide additional implementation time for small creditors
The temporary exemption scheduled to expire on January 10, 2016 that allows small creditors to make balloon-payment Qualified Mortgages and balloon-payment high-cost mortgages, regardless of where they operate, would be extended to applications received before April 1, 2016.

Again, this is just a proposal. Should it be finalized, rest assured, we will be on top of it and update you via this blog and/or our Newsletter.

Deb Irving

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