Community Banks Get QM Exemption to Make Balloon Loans

The Consumer Financial Protection Bureau has carved out a special exemption in the final qualified mortgage rule so that community banks and credit unions can continue to make balloon-payment loans in rural and underserved areas.

Eligible institutions must have less than $2 billion in assets, make less than 500 first mortgages per year and hold the balloon loans in portfolio.

These community lenders have “strong incentives to pay close attention to the borrowers’ ability to repay,” said CFPB director Richard Cordray.

CFPB also is seeking public comment on a proposal that would create a new category of qualified mortgages without balloon-payment features that are originated and held on the books of small depositories.

The proposal also opens the door for small depositories to charge higher than prime mortgage rates and still enjoy a QM safe harbor from litigation.

Under the rule, qualified mortgages cannot have a debt-to-income ratio higher than 43%. This DTI limit will not apply to eligible rural balloon mortgages.