A recent survey from the Independent Community Bankers of America found that many rural residents in the U.S. would have restricted access to mortgage loans, even under accommodations provided by the CFPB’s mortgage rules.
The survey found that the CFPB’s exceptions for rural community banks and balloon-payment mortgage loans to the ability-to-repay and qualified mortgage rules do not provide enough protection to Main Street lenders and their customers.
“Community banks are responsible mortgage lenders that did not participate in the abuses that contributed to the financial crisis,” Bill Loving, ICBA’s chairman and the president and CEO of West Virginia-based Pendleton Community Bank, said. “Nevertheless, ICBA’s survey shows that some Main Street communities could be cut off from a critical source of mortgage credit without adjustments to the CFPB’s new mortgage rules.”
Community banks serve rural borrowers and often provide them with balloon mortgage, which are prevalent in rural communities due to the nature of rural properties. The loans are not eligible to be sold into the secondary market, which provides community banks with interest in the loans and allows them to find a solution if the borrower defaults.
Though balloon loans made by small creditors that operate in rural or underserved areas may be qualified mortgage under the CFPB’s rules, the agency’s definition of rural excludes many communities, which could reduce access to credit.
Among the 75 percent of community banks that issue balloon-payment mortgages, only 46 percent would qualify for the CFPB’s provision on balloon mortgages. Only 56 percent of banks that consider themselves to be rural banks qualify as “rural” under the CFPB’s definition.
The ICBA has encouraged the CFPB to expand the definition of a qualified mortgage to include balloon-payment mortgages originated by small creditors in non-rural areas, increase the mortgage threshold to qualify as a community lender to 1,000 per year, expand the definition or rural and grant qualified mortgage safe harbor protections for refinancing balloon mortgages after Jan. 10.