The Consumer Finance Protection Bureau will allow small banks and credit unions to make balloon mortgages over the next two years even if they are not located in rural and underserved areas.
The Dodd-Frank Act generally bans balloon mortgages unless the originating banks serve predominantly rural and underserved community.
But the CFPB is providing this temporary exemption to “preserve access to responsible, affordable mortgages for some consumers,” according to a final rule issued Wednesday afternoon.
The final rule clarifies the ability-to-repay standards in the qualified mortgage rule that was issued back in January and expands the
Small creditors are defined as portfolio lenders with up to $2 billion in assets and originate no more than 500 first-mortgage loans per year.
Mortgage loans originated by these small creditors will be considered QM loans even if they have a debt-to-income ratio greater than 43%.
Loans made by other lenders lose their QM status if the DTI ratio exceeds 43%.
The final rule also expands the safe harbor provision so small creditors that make higher interest rate loans will be shielded from litigation.
The Independent Community Bankers of America welcomed the changes.
“ICBA and the nation’s community bankers support the CFPB’s efforts to minimize the negative impact of its new ability-to-repay and qualified mortgage rules on Main Street communities,” said ICBA chairman and president Bill Loving.
“Nevertheless, more work needs to be done to ensure that consumers nationwide continue to have access to the mortgage market so our housing and financial systems can continue their recovery.”
