Interpretive rule outlines how ‘underserved’ areas are determined, reflecting changes in HMDA regs

The way in which the federal consumer financial protection agency determines which counties qualify as “underserved” for a given calendar year for purposes of mortgage origination are outlined in an interpretive rule issued Tuesday.

The guidance is necessary, the Consumer Financial Protection Bureau (CFPB) said, because of changes in data elements that were altered or removed in rules that became effective in 2018.

The bureau said the interpretive rule describes the Home Mortgage Disclosure Act (HMDA) data that will now be used for determining that an area is “underserved” for purposes of the standard described in Regulation Z, which implements the Truth in Lending Act (TILA). The agency said its annual list of rural and underserved counties and areas is used in applying various provisions under Reg Z. Those include the exemption from the requirement to establish an escrow account for a higher-priced mortgage loan and the ability to originate balloon-payment qualified mortgages and balloon-payment, high-cost mortgages.

The CFPB noted that Reg Z states that an area is “underserved” during a calendar year if, according to HMDA data for the preceding calendar year, it is a county in which no more than two creditors extended covered transactions secured by first liens on properties in the county five or more times.

The agency said it previously interpreted how HMDA data would be used to determine which areas meet this standard using a method set forth in the commentary to Regulation Z.

“However, portions of this method have become obsolete because they rely on data elements that were modified or eliminated by certain 2015 amendments to the Bureau’s HMDA regulations, which became effective in 2018,” CFPB said.

The bureau said its rule now describes the HMDA data that will instead be used in determining that an area is “underserved” for purposes of the standard described in Regulation Z. The new interpretation supersedes the outdated methodology set forth in the commentary to Reg Z, the agency said.

A list of rural and underserved counties using the HMDA data described in the rule is on the bureau’s website.

CFPB Issues Interpretive Rule on Method for Determining Underserved Areas

List of rural and underserved counties

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