Mortgage lenders operating in 34 of Mississippi’s 82 counties can continue to make balloon-payment mortgages under a special exemption the U.S. Consumer Financial Protection Bureau has granted counties it designated as “rural” or “underserved.”
Lenders in the exempted counties that meet specific requirements can continue making the balloon-payment mortgages without fearing the legal liabilities that will be faced by their counterparts in Mississippi counties not designated as “rural” or underserved.”
The brunt of the new mortgages rules won’t be felt immediately after Jan. 10 by small banks of under $2 billion in assets that operate in counties not on the rural and underserved list. They can continue issuing the balloon mortgages through Jan. 10, 2016, provided they keep the loans in their portfolios for at least three years, set the balloon period to at least five years and make no more than 500 first-lien mortgages a year.
For the two-year transition period, regulators will give the balloons “qualified” loan status. After that, banks will issue them without the legal protections that accompany the “qualified” loan designation. That means exposure to individual borrower and class action suits challenging the underwriting and adherence to guidelines of the balloon mortgages, according to Ed Wilmesheer, banking lawyer with Ridgeland’s Butler Snow.
“They can come in and say you really didn’t do what you said you did,” he said.
Many more community banks in rural stretches of Mississippi and throughout the country should have been granted the exemptions, the Independent Community Bankers of America, or ICBA, says. The Consumer Financial Protection Bureau used a much too-narrow definition of “rural” in compiling the exempted county list, the ICBA said, charging the list left off too many communities and unnecessarily cut off access to credit.
Bill Loving, ICBA chairman and president and CEO of Pendleton Community Bank in Franklin W.V., said an ICBA survey shows that “some Main Street communities could be cut off from a critical source of mortgage credit without adjustments to the CFPB’s new mortgage rules.”
The financial services industry has always deemed balloon-payment mortgages made throughout Mississippi and elsewhere as non-conforming. A chief reason for that classification is the absence of securitization that could otherwise qualify the borrower for conforming loans such as those insured by the Federal Housing Administration, the U.S. Department of Agriculture or the Department of Veterans Affairs. These loans are traditional 15- and 30-year mortgages eligible for sale in secondary markets.
Bankers in rural Mississippi attribute the securitization problem to the difficulty of finding comparable recent sales in the vicinity of the home to be financed. “They don’t conform to those guidelines so they can’t get a conventional mortgage,” said Robert Barnes, president and CEO of Magee’s First Priority Bank.
Meanwhile, small banks in rural counties not on the list of rural and underserved counties are in a “quandary” over the type loans they will make after Jan. 10 2016, Butler Snow’s Wilmesheer noted.
“I don’t think we have anybody who says they know what they are going to do,” he said.
What they do know, he said, is that they are going to have to make qualified mortgages.