Many residents in rural America would have reduced access tomortgage credit from community bankers despite a rural lenderqualified mortgage exemption on balloon-payment mortgages includedin rules finalized by the Consumer Financial ProtectionBureau.

The Independent Community Bankers of America's Community BankQualified Mortgage Survey, released Thursday, reported thatcommunity banks in rural communities often make non-traditionalloans such as balloon mortgages. The loans are not eligible to besold into the secondary market, so they are kept on the bank'sbooks, giving community banks a vested interest in the loans andallowing them to work out a solution if repayment problemsarise.

While balloon loans made by small creditors that operatepredominantly in rural or underserved areas are deemed to bequalified mortgages under the CFPB mortgage rules, the bureau'sdefinition of rural is too narrow, leaving out too many communitiesand unnecessarily cutting off access to credit, the ICBA hasargued.

The ICBA conducted the survey to gather data on the impact ofthe accommodations for community banks in the CFPB's newability-to-repay and qualified mortgage rules.

Additionally, the survey found that:

• Among the 75% of respondent community banks that currentlymake balloon-payment mortgage loans, less than half (46%) wouldqualify for the rule's provision for balloon mortgages.

• For respondent community banks that consider themselves to berural banks, 44% do not qualify as “rural” under the rule'sdefinition.

• Among the community banks that do not qualify for the balloonexception, 43% are disqualified primarily on the basis of thedefinition of “rural.”

• Respondent community banks hold an average of 64% oforiginated residential mortgage loans in their portfolio for thelife of the loan. The majority of respondent banks (52%) hold atleast 80% or more of the loans originated for the life of theloan.

• Only 33% of the respondents originate and hold adjustable-ratemortgages in portfolio.

• Most respondents (64%) indicate they make higher-pricedmortgage loans and provide escrow accounts.

As a result, the ICBA is encouraging the CFPB to expand thedefinition of qualified mortgage to include additional loans heldin portfolio by small creditors, including balloon paymentmortgages originated by small creditors in non-rural markets.

The banker trade association also is asking the CFPB to expandthe definition of “rural” for balloon mortgage loans and escrowrequirements to include all counties outside metropolitanstatistical areas and towns with fewer than 50,000 residents.

The survey, which was conducted Feb. 7-14, received 380responses, for a response rate of approximately 8%.