In the March 25, 2016 issue of the Federal Register (81 FR 16074) (click here), the CFPB published an interim final rule expanding eligibility for exemptions designated for small creditors operating in rural or underserved areas. These exemptions include eligibility to generate balloon-payment, higher-cost mortgages; qualified mortgages that contain balloon-payments and exemptions from required escrow accounts for higher-priced mortgage loans. This rule is implemented to comply with the Helping Expand Lending Practices in Rural Communities Act, which amended the Truth in Lending Act. The rule will become effective on March 31, 2016 and will amend 12 CFR part 1026 (Regulation Z)-in particular, paragraphs (b)(2)(iii)(A), (b)(2)(iii)(D)(1), and (b)(2)(iv)(A) of Section 1026.35 and the Official Interpretations to Sections 1026.35(b)(2)(iii) and (iv) and 1026.43(f)(1)(vi) and (f)(2)(ii). First, the interim final rule will expand the rural or underserved lending exemptions to small lenders who have extended at least one first-lien covered transaction on a property located in a rural or underserved area in the previous calendar year, or, if the application for the transaction in question was received before April 1 of the current calendar year, then at least one first-lien transaction during either of the previous two calendar years. This is a vast expansion of the current exemption eligibility, which is limited to small creditors who originate a majority of their covered loans in rural or underserved areas. The CFPB estimates an additional 6,000 small lenders will qualify as rural lenders under this new test. This will amend Section 1026.35(b)(2)(iii)(A) of Regulation Z.

Complete Memorandum