Compliance Blog

Written by Eliott C. Ponte, Regulatory Compliance Counsel

On January 29, the Consumer Financial Protection Bureau (CFPB) proposed amendments to the portions of Regulation Z governing mortgages made by small creditors.  This proposal follows two other CFPB announcements: a May 2013 announcement regarding potential adjustments to the terms “rural” and “underserved,” and a May 2014 request for comment regarding the small creditor loan origination threshold. 

The CFPB proposal contains a number of amendments.  First, the CFPB is proposing to raise 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.  In addition, the proposed amendment would exclude originated loans held in portfolio by the creditor and its affiliates.  That is, under the proposal, the origination limit would only apply to loans that were sold, assigned, or otherwise transferred by the creditor or its affiliates to another person, or subject at the time of consummation to a commitment to be acquired by another person.

Second, the CFPB proposes to add a “grace period” to allow an otherwise eligible creditor that exceeded the origination limit in the preceding calendar year or as a creditor operating predominately in a rural or underserved area to operate as a small creditor with respect to applications received before April 1 of the following year.  Thus, a creditor who exceeded the origination limit in year 1 could continue to act as a small creditor for applications it receives until April 1 of year 2. 

Third, the CFPB is proposing a modification of the definition of “rural” to include either: (1) a county that meets the current definition of rural county, or (2) a census block that is not in an urban area as defined by the U.S. Census Bureau.

Fourth, the proposed rule would add two new safe harbor provisions related to the definition of “rural” or “underserved” for certain automated tools that: (1) may be provided on the CFPB’s website to allow creditors to determine whether properties are located in rural or underserved areas, or (2) may be provided on the U.S. Census Bureau’s website to assess whether a particular property is located in an urban area according to the U.S. Census Bureau’s definition. 

Last, the proposed rule would extend the temporary two-year transition period allowing certain small creditors to make balloon-payment qualified mortgages and balloon-payment high cost mortgages to certain covered transactions for which the application was received before April 1, 2016, regardless of whether they operate predominantly in rural or underserved areas.  Currently, section 1026.43(e)(6) applies only to covered transactions consummated on or before January 10, 2016.  Thus, this change would extend the sunset provision in section 1026.43(e)(6) by three months.

Comments on the proposed amendments are due on or before March 30, 2015.  NAFCU will be issuing a regulatory alert, which will include a detailed section-by-section analysis, on the proposed amendments shortly.