Various provisions in the new mortgage rules issued by the Consumer Financial Protection Bureau in January 2013 and May 2013 affected small creditors. Acknowledging that small creditors are a significant part of the mortgage industry, the CFPB has issued a final rule that revises the definition of “small creditor”, along with the definition of “rural areas” under Regulation Z of the Truth in Lending Act (TILA) as a part of the CFPB’s continued monitoring of the mortgage market and consideration of public feedback to the rules. The final rule is effective January 1, 2016 and should boost the number of financial institutions eligible for the special small creditor provisions, among other things.
The definition of “small creditor” has been revised to increase the loan origination limit used to determine a creditor’s eligibility for small-creditor status. The limit has been raised from 500 to 2,000 first-lien mortgage loans and also now excludes loans a creditor or its affiliates holds in portfolio. Additionally, a creditor’s affiliates’ assets are now included in calculating whether a creditor is under the $2 billion asset limit (adjusted annually) for small-creditor status. The final rule also expands the definition of “rural area” to include census blocks that may not be in an urban area as defined by the U.S. Census Bureau.
The final rule does reduce the time period used to determine whether a creditor is operating predominantly in rural or underserved areas from three calendar years to one calendar year. Accordingly, the rule adds a grace period that would allow a creditor to act as a small creditor or a creditor serving predominantly rural/underserved areas with respect to covered transactions received before April 1 of the current year. The rule also allows small creditors to make balloon-payment qualified mortgage loans and high cost mortgage loans with applications received before April 1, 2016, after which only those small creditors who operate predominantly in rural or underserved areas can do so.