CFPB Mends Mortgage Rules to Serve Small Creditors

The Consumer Financial Protection Bureau (CFPB) broadened the Qualified Mortgage rule to certain special provisions for small creditors that operate in rural or underserved areas under the Helping Expand Lending Practices in Rural Communities (HELP) Act.

The Bureau’s mortgage rules which was brought into effect in January 2014 had a rule called ‘Ability-to-Repay’ which laid the onus of determining creditworthiness strictly on lenders.

As a result, the category of ‘Qualified Mortgages’ that emerged out of it kept certain risky features of the loan from borrowers who could not comply with the ability-to-repay rule. For instance, small creditors operating in rural areas were not allowed to originate balloon payments. Additionally, escrow accounts for higher-priced mortgage loans were not permitted.

The Bureau received flak for this from the House Financial Committee which alleged that the rule harmed consumer access and choice when it comes to home loans and mortgages by forcing many community banks and credit unions to downsize or shut down their mortgage operations.

The CFPB in its statement acknowledged that the “rule is being adopted to fit within the background of the CFPB’s prior regulations in the mortgage market.”

Financial Services Committee Chairman Jeb Hensarling in his critique against the rule said, “We are already hearing numerous feedback concerning the harmful impact on consumers of the Bureau’s Qualified Mortgage rule, which went into effect just days ago.”

Is this a way of making amends?