Several of our rules have provisions related to mortgage loans made by creditors that during the preceding year operated predominantly in “rural” or “underserved” counties or mortgage loans made in “rural” counties. In general, for purposes of these provisions, “rural” counties are defined annually by using the USDA Economic Research Service’s urban influence codes, and “underserved” counties are also defined annually by reference to data collected under the Home Mortgage Disclosure Act (HMDA). We are committed to annually posting a list of such counties, which creditors may rely on as a safe harbor to determine whether a county is “rural” or “underserved” for a given calendar year. A couple months ago, we posted a list of counties determined to be “rural” or “underserved” during 2012 for purposes of applying the affected provisions during 2013. We are posting the 2014 list today.
The following rules have provisions that relate to mortgage loans made by creditors operating predominantly in rural or underserved counties or made in rural counties:
- Our Escrow Requirements under the Truth in Lending Act rule (Escrows Rule), which took effect on June 1, 2013, requires certain creditors to create escrow accounts for a minimum of 5 years for higher-priced mortgage loans (HPMLs). However, such loans made by certain small creditors that operate predominantly in rural or underserved counties are exempt from this requirement.
- Under the January 2013 Ability to Repay and Qualified Mortgage Standards Under the Truth in Lending Act rule (ATR Rule), which is effective January 10, 2014, mortgage loans with balloon payments do not meet the qualified mortgage (QM) standard in most cases. However, certain small creditors that operate predominantly in rural or underserved counties will be eligible to originate balloon-payment QMs.
In addition, as part of the May 2013 Ability to Repay and Qualified Mortgage Standards Under the Truth in Lending Act rule (ATR Concurrent Rule), we recently expanded this exemption to allow certain small creditors during the period from January 10, 2014, to January 10, 2016, to make balloon-payment qualified mortgages even if they do not operate predominantly in rural or underserved areas.
- These same small creditors will be exempt, when making those balloon-payment QMs, from restrictions on balloon payments for certain high-cost mortgages under the Bureau’s High-Cost Mortgage and Homeownership Counseling Amendments to the Truth in Lending Act rule (HOEPA rule), which also goes into effect on January 10, 2014.
- Also, certain HPMLs will be exempt from new second appraisal requirements if they are originated in rural counties under the interagency Appraisals for Higher-Priced Mortgage Loans rule, which goes into effect on January 18, 2014. To facilitate compliance with this requirement, because it is based only on rural status, we also are publishing a separate list that does not include counties that are underserved only (2014 rural-only list).
We have received extensive feedback on the definitions of “rural” and “underserved” and recently announced our intent to consider whether those definitions can be refined over the next two years. We also are aware that some counties’ status as rural or non-rural has changed between the 2013 list and the 2014 list because of updated information from the 2010 Census, which will result in some small creditors losing eligibility for the exemptions discussed above. To alleviate these concerns and to facilitate lending by small creditors while we consider whether and how to refine the definitions, we are taking a number of steps to amend the affected rules:
- First, as noted above, our recently finalized ATR Concurrent Rule extends the ability to originate balloon QMs to certain small creditors that do not operate predominantly in rural or underserved areas during the period from January 10, 2014, to January 10, 2016, to facilitate transitioning from balloons to adjustable rate mortgages. That means small creditors that do not operate predominantly in counties on the Bureau’s list can still take advantage of the balloon QM provision if they meet the rule’s other criteria.
- Second, we also recently proposed to extend the same treatment to these small creditors for purposes of the high-cost mortgage balloon exemption. If adopted, this proposed change also would allow small creditors not operating predominantly in rural or underserved counties to take advantage of the exemption from the high-cost mortgage balloon restrictions.
- Third, we also proposed to extend eligibility for the rural or underserved exemption from the escrows requirement to creditors that operated predominantly in rural or underserved counties in any of the previous three years. Under this proposed change, creditors that operated predominantly in rural or underserved counties in 2012 (and also meet the other criteria and thus are eligible for the exemption during 2013) would not lose eligibility during 2014 as a result of any differences between the 2013 list and the 2014 list that we are posting today (or in 2015 if a county’s status changes next year).
The comment period on the two open proposals will close July 22. We will work to issue a final rule as quickly as possible this summer so that creditors’ status will be clear in advance of the January effective dates of the affected rules.