The "rural and underserved" criterion for small creditors has nothing to do with the location of the creditor and everything to do with the location of the properties on which the creditor made first-lien covered transactions in the previous calendar year (or either of the previous calendar year, if the application in question is received before April 1 of the current year. If more than half of your first-lien covered transactions were on properties located in rural or underserved areas, you meet that criterion, and, if you also meet the criterion on total asset size (as of the prior year end) -- currently less than $2.052 billion -- and the criterion on volume of sold first-lien covered loans (under 2,000 and portfolio loans don't count), you can make balloon-payment QMs under section 1026.43(f).
If you don't meet one of the three criteria -- such as the "more than half of first-lien covered transactions in rural or underserved areas" criterion, you can't make balloon-payment QMs. But you do qualify to make balloon-payment loans under the general ATR rules in section 1026.43(c). When doing the calculation of the monthly debts that will be used in the debt/income ratio, if the loan is not going to be a Higher-Priced Covered Transaction (HPCT), you look at the payments for the first five years, and can ignore the balloon payment if it is scheduled after the end of that five-year period. But if the loan will be an HPCT, you have to use the balloon payment regardless of when it's scheduled (5, 7, 10, 15 years, it doesn't matter). That makes it very difficult, if not impossible, for a balloon-payment HPCT to pass ATR requirements.
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John S. Burnett
BankersOnline.com
Fighting for Compliance since 1976
Bankers' Threads User #8