Hanna Nakano Oct. 8, 2015, 1:50pm


WASHINGTON (Legal Newsline) - The Consumer Financial Protection Bureau has announced changes to mortgage regulations designed to increase lending in rural and disadvantaged communities, but members of the mortgage broker community argue the new regulations are just a small bandage on a much larger problem.

John Councilman, president of the National Association of Mortgage Brokers, said the announcement by the CFPB shouldn’t be trumpeted as a major advancement.

“I’m not minimizing the fact that there’s at least an attempt to have a little tiny bit of regulatory relief,” Councilman said, “but this is something that will be of minimal help, I believe, to both the banks and the consumers. It’s just far too little.”

The CFPB said the changes, announced last week, will help consumers in rural areas access the mortgage credit they need while still maintaining important consumer protections.

Councilman said there are two main advantages to the new regulations: that these banks potentially can issue balloon payments somewhat easier and offer loan products that were in a higher interest rate than normally available, without losing protection under the law.

Overall, Councilman said he doesn’t see the regulations making much of a difference to the average person in a rural community.

“If they’re having difficulty getting a loan this may be somewhat beneficial to them, but again, I’m just not really impressed," he told Legal Newsline.

One reason Councilman isn’t particularly happy is the amount of “minutia” in the lengthy regulations, which may cause more harm than good. He said the regulations have very strict guidelines.

To qualify for these loans, he explained, some of the paperwork requires dollar amounts to be followed by a decimal and two zeros, while other paperwork forbids the decimal. If a lender makes a simple clerical mistake, they get slapped with a fine, Councilman said.

“They [CFPB] realize the pressure for regulatory reform and I understand that we need consumer protections also, but they need to listen more closely to the industry, as opposed to simply going out and just doing whatever they want to do in the name of consumer protection,” he said.

The new rules expand how small creditors are defined, by raising the origination limit. The definition of rural areas also will be expanded to include rural areas not included in an urban area, according to the U.S. Census Bureau. Grace periods for small creditors also are being added and a one-year qualifying period for rural and underserved creditors will be implemented. Additional implementation time will be provided for small creditors. In addition, an escrow rule was established so that small creditors in underserved areas will not be required to establish escrow accounts for higher-priced mortgages.

The new regulations take effect Jan. 1, 2016.

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