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CFPB Urges Greater Access to Credit in Rural Areas

[Wednesday, February 25th, 2015]

The Consumer Financial Protection Bureau (CFPB), in an effort to help people in underserved communities secure mortgages, has proposed changes to some of its regulations. They are focusing especially on rural areas, where small lenders may have difficulty complying with current federal guidelines.

The proposal would allow financial institutions to offer more types of mortgages in rural and underserved communities. Richard Cordray, director of the CFPB, said that the changes would help people while still keeping consumer protections intact.

The mortgage rules in question were put into place in January and May 2013 and, for the most part, took hold in January 2014. They include the Ability-to-Repay rule, which protects folks from predatory mortgage lenders. The rule required lenders to make a good-faith determination that potential borrowers can repay loans and blocks them from putting risky loan features in place.

“Responsible lending by community banks and credit unions did not cause the financial crisis,” said Cordray. “Today’s proposal will help consumers in rural or underserved areas access the mortgage credit they need, while still maintaining these important new consumer protections.”

Small creditors struggle with regulations

Some of the provisions in the new mortgage rules specifically impact small creditors. The regulation that small creditors can originate a qualified mortgage with a balloon payment is one example; balloon payments aren’t allowed with mortgages, except in designated rural and underserved areas.

Proposed changes include:

  •  Expansion of the definition of small creditor. Lenders could originate up to 2,000 first-lien mortgages and still qualify as small creditors, up from a limit of 500. This number would exclude loans in the creditor’s own portfolio.
  •  Mortgage affiliates would be included in small-creditor status calculations. The asset limit for small–creditor status would remain at less than $2 billion, but the proposal would mean that the assets of creditors’ mortgage-originating affiliates would be included in the calculation.
  •  Changing the definition of “rural.” The proposal would expand the definition of rural to include census blocks that are not in an urban area according to the U.S. Census Bureau.
  •  Allowing grace periods for small and underserved creditors that exceed the origination limit or asset-size limit. Financial institutions would be able to operate as long as their applications are received before April 1 of the current calendar year.
  •  Creating a one-year period for lenders to qualify for rural or underserved status.

The CFPB is coordinating with other government agencies in an effort to guarantee a smooth transition with regard to the new mortgage rules.

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