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CSBS Proposes CFPB Adopt a Rural Designation Petition Process


April 2 - As the Consumer Financial Protection Bureau prepares to implement balloon qualified mortgage and escrow requirements for rural creditors, CSBS is encouraging the CFPB to adopt a petition process to define “rural” counties.

The Dodd-Frank Act confers Qualified Mortgage benefits on balloon loans if they are made in rural or underserved areas. In implementing the standard, the CFPB has elected to utilize the USDA Economic Research Service’s Urban Influence Codes as the basis of their definition of “rural.”   

In a letter directed to CFPB Director Richard Cordray, CSBS President and CEO John Ryan suggested the CFPB adopt a petition process whereby interested parties can petition the CFPB to make a determination that an area be considered “rural” for the purposes of Truth in Lending rural requirements.

“Practically speaking, there is no single good manner to define ‘rural’ in a country with 3,794,000 square miles and more than 300 million people,” Ryan wrote. “As a result, the rural designation will not be applied to areas inherently rural because states and county sizes vary significantly.”

To mediate inconsistencies in the definition of “rural,” a process should exist whereby an interested party could petition the CFPB for a county to be considered rural.

“When definitions affect credit availability, there should be some opportunity to submit a case to the defining body arguing why an area should be considered the type of area excepted for responsible balloon loan origination,” Ryan wrote.

The letter to Director Corday is available here.

Background Information:

The CFPB issued the Balloon Payment Qualified Mortgage regulation to implement requirements mandated by the Dodd-Frank Act. Among other requirements, under the rule, a balloon loan can meet the requirements of a “qualified mortgage” if:

Community banks have utilized balloon loans for decades, providing mortgage credit in their communities where it would otherwise be impossible due to interest rate risk for the bank, credit characteristics of the borrower, or unique nature of the real estate. Balloon loans are often originated because the property or borrower are otherwise ineligible for the secondary mortgage market. These loans are held in portfolio, keeping all the risk of default with the bank, and refinanced on an as-needed basis for the mutual benefit of the borrower and lender at no or limited cost.

Therefore, this provision could unnecessarily restrict the availability of the responsibly underwritten products utilized by community banks.