[House Report 114-60]
[From the U.S. Government Publishing Office]


114th Congress      }                               {     Report
                        HOUSE OF REPRESENTATIVES
 1st Session        }                               {     114-60
====================================================================
 
     HELPING EXPAND LENDING PRACTICES IN RURAL COMMUNITIES ACT

                                _______
                                

 April 13, 2015.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

Mr. Hensarling, from the Committee on Financial Services, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 1259]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 1259) to provide for an application process for 
interested parties to apply for an area to be designated as a 
rural area, and for other purposes, having considered the same, 
report favorably thereon without amendment and recommend that 
the bill do pass.

                          PURPOSE AND SUMMARY

    H.R. 1259, the ``Helping Expand Lending Practices in Rural 
Communities Act,'' directs the Consumer Financial Protection 
Bureau (CFPB) to create a petition process under which a person 
who lives or does business in a state may apply to have an area 
in the state identified as a rural area if it has not yet been 
so designated by the CFPB for purposes of federal consumer 
financial law.

                  BACKGROUND AND NEED FOR LEGISLATION

    The Dodd-Frank Wall Street Reform and Consumer Protection 
Act (Pub. L. No. 111-203) created a statutory requirement that 
an originator of a residential mortgage loan must make a 
determination that the borrower has the ability to repay the 
loan. Lower-cost loans that meet certain criteria prescribed by 
the CFPB in regulations that became effective in January 2014 
are treated as ``Qualified Mortgages,'' and afforded a legal 
safe harbor from the penalties associated with the failure to 
determine that a borrower has the ability to repay. Generally, 
mortgage loans with balloon payments do not qualify for this 
safe harbor.\1\ The Dodd-Frank Act authorized the CFPB to 
extend the safe harbor to balloon mortgage loans with certain 
characteristics when offered by a creditor operating in a rural 
or underserved area.
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    \1\Balloon mortgages are generally defined as those in which a 
large portion of the borrowed principal is repaid in a single payment 
at the end of the loan term.
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    As part of its final Qualified Mortgage rule, the CFPB 
excluded balloon loans from the definition of a Qualified 
Mortgage unless the creditor originates fewer than 500 
mortgages annually, has less than $2 billion in assets, and 
operates ``predominantly in rural or underserved areas.''\2\
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    \2\CFPB, ``Ability to Repay and Qualified Mortgage Standards Under 
the Truth in Lending Act (Regulation Z),'' Jan. 10, 2013, available at: 
http://www.consumerfinance.gov/regulations/ability-to-repay-and-
qualified-mortgage-standards-under-the-truth-in-lending-act-regulation-
z/.
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    To define the term ``rural,'' the CFPB used the ``Urban 
Influence Codes'' developed by the Department of Agriculture's 
Economic Research Service, which are, in turn, derived from the 
definitions of ``metropolitan'' and ``micropolitan'' developed 
by the Office of Management and Budget (OMB).\3\ There are 
concerns that by choosing this definition of ``rural,'' the 
CFPB has excluded certain lenders from qualifying for the 
balloon payment safe harbor, and because creditors will be 
reluctant to make mortgage loans that are not Qualified 
Mortgages, the use of this definition of ``rural'' will 
needlessly limit the availability of credit for rural 
properties.
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    \3\The Urban Influence Codes can be accessed at http://
www.ers.usda.gov/data-products/urban-influence-codes.aspx#.Uo5XgGcpB_s.
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    Appearing before the Subcommittee on Financial Institutions 
and Consumer Credit on June 18, 2013, Charles A. Vice, 
Commissioner of the Kentucky Department of Financial 
Institutions, testified on behalf of the Conference of State 
Bank Supervisors that ``[i]t is illogical that a ``rural'' 
county can have six times the number of people on aggregate and 
five times the number of people per square mile than a non-
rural county with a smaller population. These are the types of 
results that occur when an inherently local issue like 
determining the characteristics of land areas is done by 
formula in Washington, D.C. and not by local officials.''\4\
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    \4\Testimony of Charles A. Vice, Commissioner of the Kentucky 
Department of Financial Institutions, on behalf of the Conference of 
State Bank Supervisors, ``Examining How the Dodd-Frank Act Hampers Home 
Ownership,'' U.S. House Financial Services Committee, Subcommittee on 
Financial Institutions and Consumer Credit, June 18, 2013, available 
at: 
http://financialservices.house.gov/uploadedfiles/hhrg-113-ba15-wstate-
cvice-20130618.pdf.
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    On January 29, 2015, the CFPB proposed to amend its 
origination limit for small creditors from 500 to 2,000 loans, 
for loans not held in portfolio by the creditor or its 
affiliates.\5\ According to the CFPB, expanding the origination 
limit to 2,000 loan originations, and excluding loans held in 
portfolio from the calculation would increase the number of 
creditors that receive small-creditor status by 700, from 
approximately 9,700 to approximately 10,400.
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    \5\http://files.consumerfinance.gov/f/201501_cfpb_amendments-
relating-to-small-creditors-and-rural-or-underserved-areas.pdf.
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    The CFPB's proposal would also modify its ``rural'' 
definition to include either (1) a county that meets the 
current rule, or (2) a census block that is not in an urban 
area, as defined by the Census Bureau using the latest 
decennial census of the United States. This expanded census 
block classification provides greater granularity than the 
county-based metric, and thus may capture rural pockets within 
counties that are designated as non-rural under the CFPB's 
current definition. According to the CFPB, approximately 1,700 
more creditors would qualify under the new definition.
    However, concerns remain that there is no process for 
challenging a ``rural'' designation, and the expanded ``rural'' 
definition would use Census Bureau data that is updated only 
once every ten years. There are several definitions of 
``rural'' used by federal government agencies, and the 
narrowness of the CFPB's chosen definition would have had a 
greater impact on small communities than intended. The annual 
designation of ``rural'' counties is used to administer a 
number of mortgage rules, and smaller communities would be 
excluded from rural programs based on a single determination 
that is only updated every decade. Allowing a broad range of 
locally oriented evaluation criteria to identify rural counties 
would help ensure continued access to mortgage credit in those 
communities. Additionally, a petition process will allow 
institutions to provide evidence to determine if an area is 
truly rural-based, and will provide further flexibility in 
allowing small communities access to credit.
    Appearing before the Committee on March 18, 2015, Tyrone 
Fenderson, President and Chief Executive Officer of 
Commonwealth National Bank, testifying on behalf of the 
American Bankers Association, noted:

          The definition of rural and underserved is critical 
        and can dramatically affect banks and the communities 
        they serve. The CFPB has already recognized this and 
        has used its [Dodd-Frank] discretionary authority to 
        exempt certain loans from the qualified mortgage rule. 
        This has been very important to accommodate community 
        banks that make short-term balloon loans as a means of 
        hedging against interest rate risk. However, the 
        exemption applies only if, during the preceding 
        calendar year, the creditor extended more than 50 
        percent of its total covered transactions that provide 
        for balloon payments in one or more counties designated 
        by the Bureau as ``rural'' or ``underserved.'' Thus, 
        the definitions used can be limiting and hurt mortgage 
        customers that are inevitably in counties that may have 
        been inappropriate excluded.

    In a letter to the Committee dated March 18, 2015, the U.S. 
Chamber of Commerce stated its support for H.R. 1259, writing 
that:

          The HELP Act would help preserve and expand mortgage 
        access in rural and underserved areas by creating an 
        innovative petition mechanism that would allow 
        individuals to challenge a CFPB ``non-rural'' 
        designation for certain areas. Despite the Dodd-Frank 
        Act's explicit requirement that the CFPB consider the 
        impact its rulemakings have upon rural communities, the 
        QM rule has created a number of adverse consequences 
        for rural areas across the country. The HELP Act would 
        rectify this issue and ensure that rural communities 
        continue to be served in the mortgage market.

                                HEARINGS

    The Committee on Financial Services held no hearings on 
H.R. 1259 in the 114th Congress.

                        COMMITTEE CONSIDERATION

    The Committee on Financial Services met in open session on 
March 25, 2015, and March 26, 2015, and ordered H.R. 1259 to be 
reported favorably to the House without amendment by a recorded 
vote of 56 yeas to 2 nays (Record vote no. FC-17), a quorum 
being present.

                            COMMITTEE VOTES

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto. The 
sole vote in committee was a motion by Chairman Hensarling to 
report the bill favorably to the House without amendment. The 
motion was agreed to by a recorded vote of 56 yeas to 2 nays 
(Record vote no. FC-17), a quorum being present.


                      COMMITTEE OVERSIGHT FINDINGS

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the findings and recommendations of 
the Committee, based on oversight activities under clause 
2(b)(1) of rule X of the Rules of the House of Representatives, 
are incorporated in the descriptive portions of this report.

                    PERFORMANCE GOALS AND OBJECTIVES

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the Committee states that H.R. 1259 
will facilitate the designation of an area within a state as a 
rural area for purposes of federal consumer financial law by 
directing the Consumer Financial Protection Bureau to create a 
petition process by which a person may apply to have an area 
designated as rural.

   NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY, AND TAX EXPENDITURES

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee adopts as its 
own the estimate of new budget authority, entitlement 
authority, or tax expenditures or revenues contained in the 
cost estimate prepared by the Director of the Congressional 
Budget Office pursuant to section 402 of the Congressional 
Budget Act of 1974.

                        COMMITTEE COST ESTIMATE

    The Committee adopts as its own the cost estimate prepared 
by the Director of the Congressional Budget Office pursuant to 
section 402 of the Congressional Budget Act of 1974.

                 CONGRESSIONAL BUDGET OFFICE ESTIMATES

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:
                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, April 6, 2015.
Hon. Jeb Hensarling,
Chairman, Committee on financial Services,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 1259, the Helping 
Expand Lending Practices in Rural Communities Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Susan Willie.
            Sincerely,
                                                Keith Hall,
                                                          Director.
    Enclosure.

H.R. 1259--Helping Expand Lending Practices in Rural Communities Act

    H.R. 1259 would direct the Bureau of Consumer Financial 
Protection (CFPB) to develop a temporary program to designate 
certain counties as rural areas for purposes of enforcing 
regulations under its authority. The agency has defined the 
term ``rural'' in accordance with the Urban Influence Codes 
(UICs), developed by the Department of Agriculture; those codes 
form a classification system that distinguishes metropolitan 
and nonmetropolitan counties. H.R. 1259 would direct the CFPB 
to allow individuals to apply to have certain counties--those 
that do not meet the UIC definition--designated as rural areas. 
The bill would limit the term of the program to the two-year 
period starting on the date of enactment; it also would require 
applications to be made available for public comment and would 
direct the agency to approve or deny applications within 90 
days of the end of the comment periods.
    Based on information from the CFPB, CBO estimates that 
enacting H.R. 1259 would increase direct spending by about $1 
million over the 2015-2025 period; therefore, pay-as-you-go 
procedures apply. We expect the agency would hire additional 
staff over the two-year period of the program at a total cost 
of about $700,000 and incur additional costs of about $250,000 
to develop a system to accept and process applications. CBO 
estimates that enacting the bill would not affect revenues. 
Implementing the bill would not affect discretionary costs 
because the CFPB is permanently authorized to spend amounts 
transferred from the Federal Reserve System.
    H.R. 1259 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act.
    The CBO staff contact for this estimate is Susan Willie. 
The estimate was approved by Theresa Gullo, Assistant Director 
for Budget Analysis.

                       FEDERAL MANDATES STATEMENT

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates reform 
Act.

                      ADVISORY COMMITTEE STATEMENT

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                  APPLICABILITY TO LEGISLATIVE BRANCH

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of the section 
102(b)(3) of the Congressional Accountability Act.

                         EARMARK IDENTIFICATION

    H.R. 1259 does not contain any congressional earmarks, 
limited tax benefits, or limited tariff benefits as defined in 
clause 9 of rule XXI.

                    DUPLICATION OF FEDERAL PROGRAMS

    Pursuant to section 3(g) of H. Res. 5, 114th Cong. (2015), 
the Committee states that no provision of H.R. 1259 establishes 
or reauthorizes a program of the Federal Government known to be 
duplicative of another Federal program, a program that was 
included in any report from the Government Accountability 
Office to Congress pursuant to section 21 of Public Law 111-
139, or a program related to a program identified in the most 
recent Catalog of Federal Domestic Assistance.

                   DISCLOSURE OF DIRECTED RULEMAKING

    Pursuant to section 3(i) of H. Res. 5, 114th Cong. (2015), 
the Committee states that H.R. 742 does not require any 
directed rulemakings.

             SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1. Short title

    This section cites H.R. 1259 as the ``Bureau Advisory 
Commission Transparency Act.''

Section 2. Designation of rural area

    This section directs the CFPB to establish an application 
process under which a person who lives or does business in a 
state may apply to have an area in the state identified as a 
rural area if it has not yet been so designated by the CFPB for 
purposes of federal consumer financial law. This section would 
direct the CFPB, when it considers an application, to take into 
account various measures for classifying an area as rural, such 
as Census Bureau classifications, Office of Management and 
Budget designations, eligibility for Agriculture Department 
programs and population density. Finally, this section requires 
the CFPB to:
    1. Publish an application in the Federal register within 60 
days of receipt and make it available for public comment for at 
least 90 days;
    2. Grant or deny the application in whole or in part within 
90 days after the public comment period ends; and
    3. Publish the grant or denial in the Federal Register, 
including an explanation of the factors upon which the CFPB 
relied in making its determination.
    If an application is denied, the CFPB is not precluded from 
accepting future applications for the same area, as long as the 
subsequent application is made more than 90 days after the 
initial denial. This provisions of the bill sunset two years 
following enactment.

         CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

    H.R. 1259 does not amend any section of a statute. 
Therefore, the Office of Legislative Counsel did not prepare 
the report contemplated by Clause 3(e)(1)(B) of rule XIII of 
the House of Representatives.

                            [all]