In response to the Helping Expand Lending Practices in Rural Communities (HELP) Act, the CFPB issued an Interim Final Rule, which expands eligibility for the special provisions allowing balloon-payment qualified mortgages and balloon-payment high-cost mortgages and for the escrow exemption.

Pursuant to the Interim Final Rule, a small creditor is no longer required to extend more than 50 percent of its covered transactions secured by first liens on properties located in rural or underserved areas in order to be eligible for either of the two special balloon-payment provisions or the exemption to the escrow requirement under Regulation Z.

Provisions
A small creditor that extends a covered transaction secured by a first lien on a property located in a rural or underserved area may originate qualified mortgages and high-cost mortgages with balloon-payment features. Additionally, a small creditor that operates in a rural or underserved area may be exempt from establishing escrows for certain HPMLs.

Generally, a small creditor cannot rely on the exemption to the escrow requirement if the small creditor maintains an escrow account for real estate- or dwelling-secured consumer credit that it or an affiliate services, unless the escrow was established as an accommodation to a distressed consumer or for a first-lien HPML during a period designated in Regulation Z (April 1, 2010 to January 1, 2016).

To prevent a small creditor that has not been able to rely on the escrow exemption (and has been required to establish escrow accounts) from losing the ability to rely on the exemption in the future, this Interim Final Rule revises the period designated in Regulation Z. A small creditor that extends a covered transaction secured by a first lien on a property located in a rural or underserved area will be able to rely on the exemption from the escrow requirement even if it continues to maintain escrow accounts established for first-lien HPMLs if the applications for such HPMLs were received between April 1, 2010 and May 1, 2016 or if the escrow account was established as an accommodation to a distressed consumer.

As a reminder, the temporary provisions that permit any small creditor, regardless of where it operates, to originate balloon-payment qualified mortgages and balloon-payment high-cost mortgages only applies to applications received before April 1, 2016.

Dates
Effective March 31, 2016, a small creditor may be eligible to rely on those special provisions and the exemption if it originated at least one covered transaction secured by a first lien on a property located in a rural or underserved area in the preceding calendar year. The allowances will cease on December 4, 2017.
The CFPB will accept comments on the interim final until April 25, 2016.

Small Creditor
The Interim Final Rule does not change the definition of small creditor.
A creditor is a small creditor if, during the preceding calendar year:
(1) the creditor and its affiliates together extended no more than 2,000 first-lien covered loans that were transferred by the creditor or affiliate to another person or that were subject to commitment to be acquired by another person at consummation; and
(2) the assets of the creditor and its affiliates that regularly extended first-lien covered loans are less than $2 billion, as adjusted annually.

Additionally, for applications received prior to April 1, a creditor is a small creditor, if during either of the two preceding calendar years:
(1) the creditor and its affiliates together extended no more than 2,000 first-lien covered loans that were transferred by the creditor or affiliate to another person or that were subject to commitment to be acquired by another person at consummation; and
(2) (2) the assets of the creditor and its affiliates that regularly extended first-lien covered loans are less than $2 billion, as adjusted annually.
The Interim Final Rule does not change the definition of small creditor.

http://files.consumerfinance.gov/f/201603_cfpb_executive-summary-of-the-rules-implementing-the-helping-expand-lending-practices-in-rural-communities-act.pdf
https://www.federalregister.gov/articles/2016/03/25/2016-06834/operations-in-rural-areas-under-the-truth-in-lending-act-regulation-z-interim-final-rule?utm_campaign=subscription+mailing+list&utm_medium=email&utm_source=federalregister.gov