We recently wrote a letter to the CFPB, asking the bureau to make regulatory changes based on several provisions signed into law last December. The provisions were part of the long-term highway funding package, and allows the CFPB to provide more flexibility for small creditors to qualify for exemptions to Regulation Z’s Qualified Mortgage (QM) balloon loan provisions and escrow requirements for higher-priced mortgage loans (HPMLs).

Our letter urged the CFPB to promptly amend TILA’s Regulation Z to allow for credit unions that make at least one (1) loan in a rural or underserved area to qualify for the exemptions from the QM balloon loan provisions and escrow requirements for HPMLs. Credit unions will benefit by being able to provide balloon loans that meet the definition of QM and being exempt from escrow requirements under certain circumstances.

Currently, in order to qualify for exemptions from the QM balloon loan provisions and escrow requirements for HPMLs, the CFPB requires a financial institution to extend over 50% of its total first-lien covered transactions on properties located in a rural or underserved area, as well as stay under the 2,000 first-lien limit and $2.052 billion asset size threshold.

While we appreciate that the CFPB imposed the over 50 percent requirement to stay within existing statutory limits, with the passage of the FAST Act, it is certainly appropriate for the CFPB to revise the rule to adjust to the new Congressional directive.  

The CFPB can go farther and allow any mortgage loan held in a credit union’s balance sheet, regardless of any other threshold, to qualify as a QM loan.

Treating loans that a financial institutions holds on its balance sheets as QM loans is appropriate because the lender retains all of the risk involved with these mortgages and is subject to significant safety and soundness supervision from its prudential regulator. 

Finally, we requested that the CFPB move promptly to implement the section of the act that provides for an application process under which a person who lives or does business in a state may petition the CFPB for an area within the state to be designated as a rural or underserved area if it is not already.