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#2044413 - 10/15/15 04:03 PM New 'rural' definition
CindyS Offline
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Illinois
"final rule expands the definition of “rural” to include census blocks that are not in an urban area as defined by the Census Bureau"

The revised rule gives a safe harbor to a creditor relying on the automated address
tool found on the Census Bureau’s website.

How do we use the current Census Bureau website to determine if a census block is 'not in an urban area'?

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Ability to Repay/Qualified Mortgage Rule
#2045729 - 10/22/15 07:44 PM Re: New 'rural' definition CindyS
rachelchri Offline
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I'm also looking for an answer to this question.

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#2046035 - 10/26/15 12:50 PM Re: New 'rural' definition CindyS
John Burnett Offline
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Review comments .35(b)(2)(iv)-1.iii.B, C and D (revised text eff. 1/1/16) https://www.bankersonline.com/regulations/12-1026-035#b2

You will see that they refer to tools that may or will be provided by the CFPB (para. B) and Census Bureau (para. C). The tools are not yet available.

The revised commentary text is in red.
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#2049559 - 11/13/15 04:16 PM Re: New 'rural' definition CindyS
JWills, CRCM Offline
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So in order to claim small creditor exemption for 2016, would we look back at 2015 or 2014 as we are unable to determine the rural status if the tool is not available yet.
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#2054464 - 12/16/15 05:48 PM Re: New 'rural' definition CindyS
NU Rhules Offline
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OK the CFPB put out their Rural Tool today,...
http://www.consumerfinance.gov/rural-or-underserved-tool/

We have branches in an MSA that includes two counties. The western county is pretty much all Farms with a few small towns. The other one contains a mid-sized city (200,000). We've been waiting to see what these new rural designations would do. I researched the tool and plugged in legitimate addresses in and around one of those small towns. The addresses outside of town (remember this is still in an MSA) all show that they are Rural according to this new tool.

So what does this mean for a bank doing loans in this area? We are a small bank doing less than 2000 loans.

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#2054538 - 12/16/15 08:48 PM Re: New 'rural' definition NU Rhules
Peach Offline
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I would like to know this as well. Our western side is 500,000 and the eastern side is very rural.

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#2054754 - 12/17/15 06:29 PM Re: New 'rural' definition CindyS
189jet Offline
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The county my bank is in and the surrounding counties were not listed as rural or underserved. So we assumed we were no longer able to do qualified balloon mortgages after April 2016.

When the look up tool came out yesterday, I checked my personal address in the country and my bank's address in a town with a population of 4,000. My address came back as rural, the bank's was not.

After doing some reading I think I understand that going forward there is a one year look back to determine if more than 50% of mortgage loans are rural. Meaning that if I look up my first mortgage address for 2016 and more than 50% are rural on the look up tool I can do qualified balloon loans in 2017.

But what is the look back or determination of whether I can do qualified balloons for the remainder of the 2016 year after April. Is the look back 3 years?

We are small, and don't do a lot of mortgages in comparison to many, so looking up addresses isn't an issue. I just want to know I'm on the right track before I tell others there is the possibility of being able to continue doing qualified balloon mortgages.

Thanks so much for any input!

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#2054807 - 12/17/15 08:26 PM Re: New 'rural' definition CindyS
John Burnett Offline
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No. Check out the revised language in 1026.35(b)(2)(iii)(A) in red here: https://www.bankersonline.com/regulations/12-1026-035#b2iii (scroll down a couple lines to see the "Editor's Note" and red text effective 1/1/16). The lookback is two year ends if you get the application before 4/1; only to the most recent year-end if on or after 4/1.
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#2055205 - 12/21/15 08:42 PM Re: New 'rural' definition John Burnett
Ski Offline
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South Louisiana
On December 4, 2015, the “Fixing America’s Surface Transportation Act (the FAST Act) was signed into law. The Act, commonly referred to as “the Highway Bill,” contains a number of provisions that affect community banks.

Mortgage Lenders in Rural and Underserved Areas:

The Act removes the requirement that a “small creditor” lend predominantly in rural or underserved areas in order to qualify for certain exceptions to the CFPB’s mortgage rules (Balloon loans that meet the definition of “qualified mortgage” and High-cost mortgages with balloon payments).
The CFPB has interpreted “predominantly” to mean that the creditor has issued MORE THAN 50% of its first lien mortgage loan in rural or underserved areas in the preceding calendar year.

This provision cannot be implemented until the CFPB issues a rule. It is not clear how the agency will interpret the statutory language without the “predominantly” requirement. ICBA is urging the CFPB to promptly act on the new law and to remove any rural or underserved lending text.

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#2056305 - 12/30/15 09:25 PM Re: New 'rural' definition John Burnett
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My mortgages now mostly fall into the new "rural area" definition and when I use the CFPB tool for loans in 2015, they indicate rural status. Previously, these loans were not rural because of the county-wide status. What exactly is my bank's status as of April 2016? We make 100% in house balloon mortgages. If the look back in April 2016 is only to calendar year 2015, can I use the updated definition of rural to make this determination? If not, I will have a period from April to December with no balloons although we already know the change will be in place for the following year.

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#2058344 - 01/13/16 04:14 PM Re: New 'rural' definition CindyS
JobSecurity Offline
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Will banks be able to continue to do non QM balloons?

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#2058354 - 01/13/16 04:44 PM Re: New 'rural' definition JobSecurity
Ski Offline
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South Louisiana
I am told No to that question because you would have to include the Balloon payment in the ATR calculation.

If the CFPB does what they should do, which I think would be to state that if you make any loans that you warehouse in any rural or underserved area, then you may continue to make Balloon Payment QM's.

The question is whether they will say this AND whether they will say it BEFORE April 1, 2016.

Just sayin.

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#2058673 - 01/14/16 05:41 PM Re: New 'rural' definition CindyS
189jet Offline
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I was thinking as long as the balloon payment is 5 years beyond the first payment, making the balloon term 62 months to be safe, you did not have to included that balloon payment in qualifying the borrower for ATR.

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#2058731 - 01/14/16 07:33 PM Re: New 'rural' definition 189jet
Ski Offline
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South Louisiana
I forgot to qualify:

For balloon loans, the calculation depends on whether the loan is a higher-priced loan.

For non-higher-priced balloon loans: Use the maximum payment scheduled during the first five years after the first regular periodic payment comes due.
For higher-priced balloon loans: Use the maximum payment in the payment schedule, including any balloon payment.

So HPML status makes the difference and in my bank's case, 99% are HPML.

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#2058799 - 01/14/16 09:37 PM Re: New 'rural' definition CindyS
John Burnett Offline
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Ski -- I think you meant to refer to HPCTs rather than HPMLs. There is some overlap of the definitions, but there are different criteria for the two. The balloon ATR calculation difference depends on whether the loan is or is not an HPCT.
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#2058800 - 01/14/16 09:38 PM Re: New 'rural' definition CindyS
raitchjay Online
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OK
And the HPCT definition has no bearing (at least as far as whether you have to count the balloon payment itself in the DTI calculation) if you meet the rural/underserved test...is that right John?
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#2058803 - 01/14/16 09:42 PM Re: New 'rural' definition CindyS
raitchjay Online
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OK
Let me clarify that question a bit: if the loan is a QM, and the bank qualifies as rural/underserved, then the HPCT status of the loan doesn't mean you have to include the balloon payment itself in the DTI calculation...is that correct? Recently, another poster and I revisited this subject that i once had put to bed, and it's been troublesome since.
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#2058806 - 01/14/16 09:47 PM Re: New 'rural' definition CindyS
John Burnett Offline
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Yes, that's correct. If you can make balloon QMs under 1026.43(f) (as a small creditor that meets the criteria in 1026.35(b)(2)(iii) (A) (B) and (C). But if you can't do that, you can make balloon payment loans under the general ATR rules, but HPCT status limits greatly your ability to do it. Most borrowers won't meet the ATR requirement if you have to include the balloon payment in the calculation.
Last edited by John Burnett; 01/14/16 09:49 PM.
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#2058807 - 01/14/16 09:49 PM Re: New 'rural' definition CindyS
raitchjay Online
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OK
Thank you John for the clarification. Really appreciate it.
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#2058817 - 01/14/16 10:15 PM Re: New 'rural' definition raitchjay
Ski Offline
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South Louisiana
From the CFPB "Ability-to-Repay and Qualified Mortgage Rule" Small Entity Compliance Guide dated 10/17/2013 - Page 21 bottom

X. How do I calculate, consider, and confirm debt information?

You must base your calculations on substantially equal monthly payments that would fully amortize the loan.

Special rules: However, there are also special rules and guidance provided for certain types of loans:

- For balloon loan, the calculation depends on whether the loan is a higher-priced loan.

- For non-higher-priced balloon loans: Use the maximum payment scheduled during the first five years after the first regular payment comes due.

- For higher-priced balloon loans: Use the maximum payment in the payment schedule, including any balloon payment.

Please tell me, am I missing something or misinterpreting this?

Thanks in advance.

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#2059109 - 01/15/16 09:28 PM Re: New 'rural' definition CindyS
John Burnett Offline
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That info, Ski, refers to the ATR calculation in 1026.43(c)(5). But a small credit that meets the criteria for making qualified mortgages under 1026.43(f) doesn't have to follow 1026.43(c)(5).
Last edited by John Burnett; 01/15/16 09:32 PM.
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#2059257 - 01/19/16 04:12 PM Re: New 'rural' definition John Burnett
Ski Offline
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South Louisiana
Thanks for the clarification John. I was not looking at it correctly.

Presently my bank meets the asset size and origination number criteria but we do not meet the current rural/underserved criteria.

My hope is that the CFPB will interpret the removal of the small creditor requirement to lend "predominately" in rural or underserved areas which would then allow us to continue (or resume) making balloon payment QM's (depending on when they decide).

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#2060166 - 01/22/16 10:12 PM Re: New 'rural' definition CindyS
newyork Offline
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If we do a non QM loan, and follow the ability to repay and the loan is a Higher Priced Mortgage Loan, must we take in consideration the balloon payment, even if we do the note for 62 months?

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#2060172 - 01/22/16 10:21 PM Re: New 'rural' definition CindyS
VMack Offline
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Yes, I believe you do. If the non QM loan is also an HPML or HPCT, the balloon payment must be calculated in the ATR regardless of when it is due.
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#2060234 - 01/25/16 02:30 PM Re: New 'rural' definition CindyS
John Burnett Offline
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The requirement relates to whether the loan is a HPCT. While there is some overlap in definitions between HPMLs and HPCTs, you shouldn't confuse them, or pull HPML status into the ATR requirements.

If you make a non-QM balloon payment closed-end loan secured by a dwelling, and its APR meets or exceeds the average prime offer rate for a comparable transaction as of the date the interest rate is set by margins given in the HPCT definition at 1026.43(b)(4), you are required by 1026.43(c)(5)(ii)(A)(2) to include the "maximum payment in the payment schedule, including any balloon payment,..." in the calculation of the payment amount used in the D/I determination.
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