On January 28, 2015, the Consumer Financial Protection Bureau (“CFPB”) issued a proposal that would ease the rules on small mortgage lenders to allow more community banks and credit unions to provide mortgage loans to consumers with higher debt levels.
The proposal would allow qualifying lenders to provide mortgage loans to borrowers whose debt exceeds 43% of their pretax income, particularly those in rural and underserved communities. The 43% debt cap was put into place by the CFPB following the financial crisis to prevent lenders from making loans to consumers who could not afford to repay their mortgages.
The CFPB’s proposed amendments to its mortgage rules would:
Expand the definition of “small creditor” by raising the loan origination limit to qualify for small lender status to 2,000 first-lien mortgage loans, from 500. Loans held in the lender’s portfolio and those of its affiliates would be excluded.
Expand the definition of “rural” areas to include census blocks not in an urban area as defined by the U.S. Census Bureau.
Include mortgage loan affiliates when calculating the asset limit for small creditor status, which will remain at less than $2 billion (adjusted annually) in total assets as of the end of the prior calendar year.
Provide a grace period for small lender and rural or underserved lender status, allowing lenders that exceeded the origination or asset size limits in the prior calendar year to operate as a small lender in certain circumstances regarding mortgage transactions with applications received prior to April 1 of the current calendar year. That same grace period would apply for lenders that no longer operated primarily in rural or underserved areas during the prior calendar year.
Change the qualifying period for determining rural or underserved lender status from any of the three preceding calendar years to one year (the preceding calendar year).
Extend the time period for small lenders to include balloon payment transactions from January 10, 2016 to April 1, 2016. Currently, eligible small lenders are about to make balloon payment qualified and high cost mortgages regardless of where they operate under a temporary exemption that is set to expire on January 10, 2016. The new proposal extends that period to April 1, 2016, to give small lenders additional implementation time.
The proposed amendments to the CFPB mortgage rules are open for comment until March 30, 2015.
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