On December 4, 2015, Congress approved the Helping Expand Lending Practices
in Rural Communities Act of 2015 (the “HELP Act”). The Help
Act expands the designation of additional areas as “rural”
under the Truth in Lending Act (“TILA” or “Reg Z”).
The HELP Act came about as a result of the Consumer Financial Protection
Bureau (“CFPB”) issuing a final ruling expanding the definition
of “rural areas” under Reg Z. The rule granted authority to
small creditors to make particular Qualified Mortgage loans in rural areas
under the Ability to Repay rule while bypassing the escrow account requirement
that is mandatory for high-priced mortgage loans.
In March of 2016, the CFPB issued the first rule in implementing the HELP
Act. The rule establishes procedures for businesses or persons who would
like to apply to have a particular geographic area designated as “rural.”
The CFPB then issued an interim final rule on March 22, 2016, that implemented
the HELP Act’s amendments to TILA. The changes would possibly increase
the number of creditors that are eligible for particular provisions under
TILA. TILA allows for the origination of balloon-payment Qualified Mortgages
and high-cost mortgages. The rules would also provide for an exemption
from the requirement to establish an escrow account for high-priced mortgages.
Prior to the HELP Act becoming law, a small creditor needed to operate
predominantly in underserved or rural areas to be eligible for these provisions.
This meant the lender would need to originate more than 50% of covered
mortgage loans for the prior calendar year on properties located in rural
or underserved areas. The HELP Act now provides for a small creditor to
be eligible even if they do not primarily operate out of rural or underserved
areas. Specifically, the new rule would strike the word “predominantly”
from TILA, and allow a small creditor to be eligible if it makes, at a
minimum, one covered mortgage for a property located in an underserved
or rural area in the prior calendar year, or for applications processed
before April 1, in either of the two previous calendar years.
The final rule also amends the current rule for determining if an area
is rural by adding a reference to include any areas that are determined
to be rural through the application process for the Reg Z certification.
The amendment also mandates that only counties or census blocks are eligible
for designation as rural through the application process. This matches
the current definition under TILA.
The rule went into effect on March 31, 2016, with comments due by April
25, 2016. The petition process may be rather limited since this final
rule only applies to lenders that do not already make at least one loan
in an area that is considered rural.
If you would like more information on this topic, or would like to set
up a free consultation, please call the main office line at (949) 298-8050 or
email Jaspreet Kaur, Esq.