The Consumer Financial Protection Bureau has Expanded Coverage for Rural Lending

The Consumer Financial Protection Bureau (CFPB) recently began implementation of the Helping Expand Lending Practices in Rural Communities (HELP Act). This act helps small creditors that operate in rural locations and areas with few lenders to provide home loans. It expands the definition of "small creditors" and enables more lending institutions to take full advantage of the special lending provisions of home loan rules that took effect in January of 2014.

HELP Act

Known as H.R. 1259, the Helping Expand Lending Practices in Rural Communities Act provides guidelines for the Consumer Financial Protection Bureau to designate some counties as rural areas. This allows the Bureau to enact regulations under its authority. As such, the Bureau has authority to spend money from the Federal Reserve without appropriation. It is estimated that the HELP Act will increase CFPB direct spending by about $3 million over the ten year period from 2014 to 2024. Under this circumstance, pay-as-you-go procedures are applicable.

The term "rural" is based on Urban Influence Codes (UIC). These codes, set by the Department of Agriculture, make a distinction between what is a metropolitan location and what qualifies for rural development home loans from the USDA. Under the HELP Act, the CFPB is directed to develop a process by which areas that do not currently meet the UIC standards for rural areas be given an opportunity to receive rural designation. The HELP Act lists the criteria the Bureau should use when evaluating an application for a county to be designated as rural. All applications must also be made publicly available for comments. The Bureau must then make a decision as to whether or not the application is approved within 90 days of the end of the public comment period.

New rule takes effect March 31, 2016

The rule begins March 31 and the period for public comments is 30 days. It will allow more lenders to qualify for the small and rural credit provisions. The CFPB established special lending provisions for small lending institutions in January of 2014. The Bureau has taken several steps since that time to expand the definitions of both "small creditors" and what fits the definition of "rural area". Previously, these small lending institutions qualified for special provisions only if over half of its loans were for rural areas or areas classified as under-served. Beginning March 31, creditors can qualify for special provisions when they originate one home loan for a property located in a rural or under-served area during the previous calendar year. The Bureau plans to monitor how these changes effect lending and make any necessary adjustments as it sees fit.

Balloon payments

A controversial aspect of the HELP Act is that it allows these newly designated rural lenders to make Qualified Mortgages that have balloon payments. This runs contrary to the current Ability-to-Repay rule established by the CFPB. The rule does not allow balloon payments or other features that are considered risky on Qualified Loans. Additionally, lending institutions that meet the new standard for small lenders may originate loans of high value that have a balloon payment. These high value loans do not have to have an escrow account.

CFPB partners with Zillow

The CFPB also announced recently that it will partner with Zillow to collect information about home buyers. The CFPB will pay individuals to participate in surveys about their experience of searching for homes, obtaining a home loan, and the buying process of their primary residence. The Bureau says it will use information gathered to create more resources for educating future home purchasers and provide them with knowledge necessary to make more informed decisions about their personal finances.