Making More Mortgages


Congress enacts ICBA-backed measures to expand mortgage safe harbors

By Ron Haynie

Late last year President Obama signed into law the Fixing America’s Surface Transportation Act, the so-call FAST Act. Along with other provisions benefiting many community banks, the transportation funding law adopted two ICBA-advocated measures that should soon aid many community banks issuing residential mortgages in communities officially designated by the Consumer Financial Protection Bureau as rural or underserved marketplaces.

“We urge the bureau to move quickly to implement these much-needed regulatory relief provisions, and look forward to working with bureau staff to help expedite the process,” ICBA urged the CFPB in a December comment letter.

One provision in the law gives the CFPB greater flexibility to allow more community banks that are small creditors to qualify as rural lenders under the Ability-To-Repay mortgage-lending rules. Another provision directs the CFPB to implement a workable process for small creditors to petition the bureau to accurately designate more communities as rural or underserved marketplaces.

As ICBA has continually explained to lawmakers, residential mortgages originated by small creditors or lenders serving marketplaces designed by the CFPB as rural or underserved areas receive pivotal Qualified Mortgage safe harbor legal protections that many community banks rely on to originate mortgages for their customers. To qualify as a small creditor, a financial institution, together with its mortgage-originating affiliates, must have assets of less than $2 billion as of the end of the last calendar year and must have issued fewer than 2,000 first-lien loans, excluding mortgages held in portfolio, during the most recent calendar year.

Small creditors that qualify as rural lenders enjoy three benefits:

  • They may issue balloon loans that meet the definition of “Qualified Mortgage”;
  • They may originate high-cost mortgages with balloon payments; and
  • They are exempt from the escrow requirement that otherwise applies to higher-priced mortgages.

Let’s address both of the mortgage-lending provisions in the FAST Act.

1. Qualifying for rural mortgage lender benefits. The mortgage provisions remove a requirement that a small creditor lend “predominantly” to an area designated as rural or underserved. The CFPB has interpreted “predominantly” to mean that a small creditor has issued more than 50 percent of its first-lien mortgage loans in rural or underserved areas in the preceding calendar year. That loan test has proved difficult for community banks that serve a mix of rural and nonrural areas but rely on Qualified Mortgage designations.

However, it’s not yet clear how the CFPB will interpret the statutory language in the transportation law dropping the “predominantly” rural and underserved dimension of the Qualified Mortgage definition.
ICBA is urging the CFPB to remove any rural or underserved lending test completely.

2. Designation of rural areas. The mortgage provisions in the transportation funding legislation require the CFPB to establish an application process by which a small creditor may petition the bureau to allow a certain area to qualify as a “rural area” under the bureau’s definition, which would allow small creditors serving those areas to qualify for Qualified Mortgage safe harbor protections.

The FAST Act sets forth evaluation criteria for the CFPB to use in making rural and underserved marketplace determinations, including a timeline to publish, comment on and decide applications it receives. The law also directs the bureau to reconsider such requests to change marketplace designations that it has previously denied.

The rural designation petition process must become effective 90 days after the law’s enactment, meaning March 4, 2016. The transportation funding law’s petition process sunsets in December 2017.

For more information about ICBA regulatory relief advocacy work, see the feature “Marking Our Progress” on page 46 or visit

Ron Haynie ( is ICBA’s senior vice president, mortgage finance policy.