CFPB Broadens QM Coverage for Lenders in Rural, Underserved Areas

The Consumer Financial Protection Bureau yesterday issued an interim final rule aimed at increasing availability of Qualified Mortgages for small lenders in rural and underserved areas.

The rule (, scheduled to take effect Mar. 31, implements recent legislation, the Helping Expand Lending Practices in Rural Communities (HELP) Act, that allowed more small creditors operating in rural or underserved areas to take advantage of these provisions.

“This rule provides broader eligibility for lenders serving those areas to originate balloon-payment qualified and high-cost mortgages,” said CFPB Director Richard Cordray.

Under the rule, Qualified Mortgages, which cannot include certain risky loan features for consumers, are presumed to comply with ability-to-repay requirements. Several provisions in those existing mortgage rules affect certain small creditors, including those operating in rural or underserved areas. For instance, small creditors that predominantly operate in such areas can originate Qualified Mortgages with balloon payments even though balloon payments are otherwise not allowed with Qualified Mortgages. Similarly, under the Bureau’s Home Ownership and Equity Protection Act rule, such creditors can originate high-cost mortgages with balloon payments. And under the Bureau’s Escrow rule, these creditors are not required to establish escrow accounts for higher-priced mortgages.

In December, Congress enacted the HELP Act, which broadened the category of rural small creditors that may be eligible for certain provisions under the Truth in Lending Act. The interim final rule implements the HELP Act by reflecting Congress’s changes that expanded eligibility for the special provisions allowing balloon-payment qualified mortgages and balloon-payment high-cost mortgages, as well as for the escrow exemption.

Prior to the HELP Act, a small creditor was only eligible for these provisions if it operated predominantly in rural or underserved areas. The Bureau’s prior rules had interpreted that to mean that the small creditor made more than half of its covered mortgage loans on properties located in rural or underserved areas in the prior calendar year. In the HELP Act, Congress amended the statute to provide that a small creditor now will be eligible for these provisions if it operates in a rural or underserved area, even if that is not the predominant area of its operations.

The interim final rule provides that as of March 31, a small creditor will be eligible for the special provisions if it originates at least one covered mortgage loan on a property located in a rural or underserved area in the prior calendar year. The CFPB will continue to monitor the mortgage market and may adjust its rules in the future to ensure they have a positive impact on consumers and the mortgage market.

The CFPB will accept comments on the interim final rule for 30 days after its publication in the Federal Register.