As we have addressed, Congress passed the Helping Expand Lending Practices in Rural Communities Act of 2015 (HELP Act) on December 4, 2015, in efforts to expand the designation of additional areas as being “rural” under Regulation Z of TILA. The HELP Act was passed after the CFPB issued a final rule to expand the definition of “rural areas” under Regulation Z with regard to the authority of small creditors to make certain qualified mortgage loans under the ability to repay rule and avoid the escrow account requirement for certain higher priced mortgage loans, as we previously discussed.
The CFPB issued its first rule to the implement the HELP Act on March 3, 2016. The procedural rule establishes the application process for persons or businesses who would like to have a geographic area designated as “rural.” Further discussion can be found here.
On March 22, 2016, the CFPB announced that it issued an interim final rule to implement the HELP Act’s amendments to TILA which would potentially increase the number of creditors that may be eligible for certain special provisions under TILA. The provisions permit the origination of balloon-payment qualified mortgages and balloon-payment high cost mortgages, and provide an exemption from the requirement to establish an escrow account for higher-priced mortgage loans. Before the HELP Act, to be eligible for these provisions, a small creditor had to operate predominantly in rural or underserved areas, meaning that the small creditor had to make more than half of its covered mortgage loans on properties located in rural or underserved areas in the prior calendar year. In contrast, the HELP Act provides that a small creditor will be eligible even if it operates in rural or underserved areas that are not the predominant area of its operations. More specifically, Congress struck out the word “predominantly” from TILA provisions.
The interim final rule amends Regulation Z to provide that a small creditor will be eligible for the special TILA provisions if it originates at least one covered mortgage loan secured by a property located in a rural or underserved area (1) in the prior calendar year or (2) for applications received before April 1 of a calendar year, in either of the two prior calendar years.
In addition, the final rule amends the current rule for determining whether an area is rural for the purposes of Regulation Z, by inserting a reference to any areas designated as rural through the application process mandated by the HELP Act. Also, this amendment establishes that only counties or census blocks are eligible for designation as rural under the application process, which is consistent with the current definition of rural area under Regulation Z.
This final rule is effective on March 31, 2016. Comments are due by April 25, 2016. However, the petition process may be limited as it will apply only to lenders that do not make at least one loan in a census block or county already designated as rural.
A copy of the interim final rule can be found here.