On September 21, 2015 the Consumer Financial Protection Bureau approved a final rule amending Regulation Z. The final rule revises the CFPB’s regulatory definitions of small creditor, and rural and underserved areas, for purposes of certain special provisions and exemptions from various requirements provided to certain small creditors under the Bureau’s mortgage rules.
The final rule specifically addresses:
- Escrow requirements for higher-priced mortgage loans;
- Ability-to-repay/qualified mortgage requirements; and
- HOEPA requirements.
Small Creditor – Loan Volume (Good News)
The final rule raises the loan origination limit for determining eligibility for small-creditor status from 500 originations of covered transactions secured by a first lien, to 2,000 such originations, and excludes originated loans held in portfolio by the creditor and its affiliates from that limit. The final rule also establishes a grace period from calendar year to calendar year to allow a creditor that exceeded the origination limit in the preceding calendar year to operate, in certain circumstances, as a small creditor with respect to transactions with applications received before April 1 of the current calendar year.
Small Creditor – Asset Level (Not So Good News)
The final rule includes in the calculation of the $2 billion asset limit for small-creditor status the assets of the creditor’s affiliates that regularly extended covered transactions. The final rule also adds a grace period to the annual asset limit, to allow a creditor that exceeded the asset limit in the preceding calendar year to operate, in certain circumstances, as a small creditor with respect to transactions with applications received before April 1 of the current calendar year.
Rural and Underserved (Not So Good News)
The final rule adjusts the time period used in determining whether a creditor is operating predominantly in rural or underserved areas from any of the three preceding calendar years to the preceding calendar year. As with the origination and asset limits for small-creditor status, the final rule adds a grace period to allow a creditor that fails to meet this threshold in the preceding calendar year, to continue operating, in certain circumstances, as if it had met this threshold with respect to transactions with applications received before April 1 of the current calendar year.
Small Creditor Escrow Exemption (Good News)
The final rule amends the current exemption under § 1026.35(b)(2)(iii)(D)(1) provided to small creditors that operate predominantly in rural or underserved areas from the requirement for the establishment of escrow accounts for higher-priced mortgage loans. The final rule ensures that creditors who established escrow accounts solely to comply with the current rule will be eligible for the exemption if they meet the expanded definitions of small creditors operating predominantly in rural or underserved areas under the final rule.
Definition of “Rural” and “Underserved” (Good News)
The final rule expands the definition of “rural” by adding census blocks that are not in an urban area as defined by the U.S. Census Bureau (Census Bureau) to the current county-based definition. The substance of the “underserved” definition is not changed.
QMs (Tiny Good News)
Extends the current two-year transition period, which allows certain small creditors to make balloon-payment qualified mortgages (§ 1026.43(e)(6)) and balloon-payment high-cost mortgages (§ 1026.32(d)(1)(ii)(C)), regardless of whether they operate predominantly in rural or underserved areas. The transition period will include covered transactions for which the application was received before April 1, 2016, rather than covered transactions consummated on or before January 10, 2016.
The 144-page final rule is generally effective on January 1, 2016. A copy of the final regulation is available here.