CFPB Proposes Mortgage Relief for Small, Rural Banks

WASHINGTON — The Consumer Financial Protection Bureau on Thursday proposed a series of regulatory relief measures for small institutions, especially those in rural areas, to help them provide credit while they try to follow the agency's tough mortgage rules.

The proposal, which gives the industry until March 30 to comment, would expand the definition of "small" banks and credit unions and "rural" areas to allow more institutions to get relief under the mortgage rules. The agency would also establish compliance grace periods for institutions that suddenly exceed the thresholds for qualifying for the relief, and prolong small creditors' exemption from curbs on balloon-payment loans by about three months to April 2016, among other changes.

Small institutions and those in underserved areas already get some added flexibility to comply with CFPB regulations on underwriting and high-cost loans. Most significantly, the agency already provides relief to smaller institutions in its rule that requires lenders to verify a borrower's "ability to repay." The underwriting rule presumes compliance for so-called "qualified mortgages," a class of safe loans with a debt-to-income cap and limits on fees.

But the agency said the latest proposed steps are meant to further alleviate the rules' effects on community institutions and rural populations.

"Responsible lending by community banks and credit unions did not cause the financial crisis, and our mortgage rules reflect the fact that small institutions play a vital role in many communities," CFPB Director Richard Cordray said in a press release. "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."

Under the new changes, "small creditor" — now defined as institutions with less than $2 billion in assets originating fewer than 500 first-lien mortgages per calendar year — would now apply to a 2,000-loan annual origination limit, effectively easing the path for more banks and credit unions to comply with the ability-to-repay rule. Loans held in portfolio by the creditor and its affiliates would also be excluded from the amount. The definition of "rural" areas would also be expanded to include census blocks not defined as being part of an urban area.