Photo of Debra Lewis

When many small and community bankers serving rural and underserved areas prepare for their New Year’s Eve toast this year, they will be able to make a major New Year’s Resolution: make more home loans.  The Consumer Financial Protection Bureau (“CFPB”) has introduced welcome new rules scheduled to take effect next year, which will raise the loan threshold for the “small creditor” exemption from 500 to 2,000 loans.  The new rules will also exclude from the threshold requirement those loans that the creditor retains in portfolio.  According to an estimate from the CFPB, approximately seven hundred additional lenders will now be “small creditors.”

These changes are part of a broader effort by the CFPB to exempt more small lenders from the extensive regulatory compliance burdens of larger lenders.  As the CFPB recognized when it announced the rule, consumers should also benefit from these changes by gaining easier access to financing.  In connection with the expanded definition of small creditors, the rules will provide certain small lenders serving rural and underserved communities with more opportunities to enter into non-standard types of loans to meet the needs of customers in these communities.

In addition to the new definition of “small creditor,” the CFPB has also expanded the definition of “rural” areas.  Now, a rural area includes any county or census block that has not been designated as “urban” by the U.S. Census Bureau.  Additionally, the rule provides safe harbors to lenders that have used Census Bureau or CFPB websites to determine whether a location is a rural or underserved area.

The rule balances the expanded exemption for lenders with several tighter restrictions.  For example, assets of a lender’s affiliates may now count toward the $2 billion asset cap that is used to determine whether a bank is a “small creditor.”  The period by which lenders are measured has also now changed, from any point in the previous three years to the previous calendar year.

Nonetheless, these rules offer exciting new potential for community bankers.  Additionally, the rules are a sign that regulators and lenders can work together, all while protecting the best interests of consumers.

For additional information, please contact Debra Lewis at or Scott Gray at


The Consumer Financial Protection Bureau recently published the eighth edition of its Supervisory Highlights, in which the Bureau “shares recent supervisory observations” touching on several legal topics under its jurisdiction. One of the principal areas covered in this edition is mortgage servicing. Ensuring compliance with the CFPB mortgage servicing rules that went into effect on January 10, 2014 has been a “high priority” for the Bureau. The Supervisory Highlights details mortgage servicer violations in the areas of loss mitigation, foreclosure, periodic statement disclosures, and the Homeowners Protection Act.

Loss Mitigation

Under Regulation X, a borrower in default may submit a loss mitigation application to the mortgage servicer in hopes of avoiding foreclosure. The mortgage servicer is required to notify the borrower within five days that it has received the application, and provide a list of any additional documents or information that may be required. CFPB examiners noted multiple violations of this rule. Mortgage servicers were cited for failing to send borrowers timely notice acknowledging receipt of a loss mitigation application, and requesting unnecessary or duplicative documents from borrowers. Servicers were also cited for misrepresenting the terms of a loan deferment plan, and for failing to honor a trial modification after the loan had been transferred. The Bureau noted that it was paying close attention to “the risks inherent in transferring loans in loss mitigation, including the risk that information is not accurately transferred between servicers.”


Mortgage servicers were cited for sending foreclosure notices to borrowers who were current on their loans, or who had already been approved for a loss mitigation plan.

Periodic Statement Disclosures

Servicers were cited for failing to send periodic mortgage statements, or sending statements with incomplete or inaccurate transaction histories, in violation of Regulation Z. In certain cases, the problems were caused by software limitations or glitches.

Homeowners Protection Act

Servicers were cited for failing to automatically cancel private mortgage insurance after the borrower’s mortgage balance reached 78% of the original property value, as required by the Homeowners Protection Act.

The CFPB mortgage servicing rules can be complex, even for experienced servicers. To help ensure compliance, and to limit liability for potential violations, a mortgage servicer should consider the following:

  • Written policies, training, audits. As the Supervisory Highlights make clear, the CFPB expects mortgage servicers to develop written policies and procedures consistent with the mortgage servicing rules. In addition, the Bureau expects servicers to train their employees to follow the policies and procedures, and to conduct regular audits to help ensure compliance.
  • Computer systems. Software limitations or failures will not excuse a mortgage servicer from failing to comply with the mortgage servicing rules. Servicers should thoroughly vet third party vendors and products, and should audit IT systems regularly.
  • Corrections and Self-Reporting. If a systemic violation is discovered, fix it immediately. A mortgage servicer may also want to self-report a large-scale violation. The CFPB, as with most regulators, tends to be more lenient on companies that promptly remedy and self-report violations. This is true regardless of whether the violation is handled by the Supervision Office or results in an enforcement action. Of course, counsel should be consulted promptly after a violation is discovered.