In our February Newsletter we alerted you to the fact that many banks could lose their Small Creditor status as of April 1, 2016. Due to a recent interim Final Rule (effective March 31, 2016); however, we have good news for once.
The CFPB has amended one of the Small Creditor criteria, specifically the Service Area Test. The Service Area Test is just one of the tests a creditor must meet to be able to originate Small Creditor Balloon Payment Qualified Mortgages and to be exempt from the HPML Escrow Requirements
Under the current rule, more than 50% of a bank’s consumer purpose, closed-end, first-lien dwelling secured loans originated in the prior year must be secured by properties located in rural or underserved areas. The interim Final Rule; however, states that for applications received on or after March 31, 2016, a creditor must have originated at least ONE consumer purpose, closed-end, first-lien loan secured by a dwelling, located in a rural or underserved area, in the preceding calendar year.
As we mentioned above, this is just one of the tests a creditor must meet to be considered a Small Creditor. For example, to be able to originate a Small Creditor Balloon Payment QM the bank must meet a Loan Volume Test, an Asset Size Test AND the Service Area Test. To be exempt from the HPML escrow requirement a bank must meet a Loan Volume Test, an Asset Size Test, the Service Area Test AND an escrow account test.
Be sure to check our April Newsletter for more on this interim Final Rule.