CFPB Finalizes QM Rule Expanding Small Lender Exemptions

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The Consumer Financial Protection Bureau finalized a rule Monday that will make it easier for some community banks to make qualified mortgages.

The rule, which takes effect on Jan. 1, allows more lenders to qualify as "small" or "rural" creditors, which are allowed more flexibility to issue loans that qualify as QM status.

Under the new rule, banks will be eligible for small creditor status if they keep their first-lien mortgage loan rate under 2,000, rather than 500 as the current limit requires. Moreover, any area that is not urban as defined by the U.S. Census Bureau will fall under the "rural category" for the purpose of designating rural creditors.

The CFPB already allows small or rural lenders more leeway to meet QM criteria. For example, if the loan is held in portfolio, a small or rural lender can make a QM loan even if the borrower's debt-to-income ratio exceeds 43%. Such creditors can also originate QM loans with balloon payments.

The finalized rules also include safeguards, like a requirement that the small-creditor status asset limit, which will remain at $2 billion, take into account a creditor's mortgage-originating affiliates. And creditors will only be considered as operating in a rural or underserved area based on their position in the preceding calendar year, rather than any one of three preceding calendar years.

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