The Consumer Financial Protection Bureau (CFPB) is providing additional relief to financial institutions. On January 19, 2021, the CFPB issued a final rule amending the Bureau’s 2013 higher-priced mortgage loan escrow rule (HPML Escrow Rule) to exempt certain insured depository institutions and insured credit unions from the requirement to establish escrow accounts for certain higher-priced mortgage loans.
The final rule exempts from the Regulation Z HPML escrow requirement any loan made by an insured depository institution or insured credit union and secured by a first lien on the principal dwelling of a consumer if (1) the institution has assets of $10 billion or less; (2) the institution and its affiliates originated 1,000 or fewer loans secured by a first lien on a principal dwelling during the preceding calendar year; and (3) certain of the existing HPML escrow exemption criteria are met, as described in the final rule (link below).
The caveats:
- As of the preceding December 31, or, if the application for the transaction was received before April 1 of the current calendar year, as of either December 31 of the two preceding years, the insured depository institution or insured credit union had assets of $10 billion or less, adjusted annually for inflation;
- During the preceding calendar year, or, if the application for the transaction was received before April 1 of the current calendar year, during either of the two preceding calendar years, the creditor and its affiliates together extended no more than 1,000 covered transactions secured by a first lien on a principal dwelling;
- The institution meets the requirement in § 1026.35(b)(2)(iii)(A), which requires that at least one covered transaction that the institution extended in the preceding calendar year (or in the year preceding that calendar year for applications received prior to April 1 of the current calendar year) was secured by a first lien on a property located in a rural or underserved area;
- An escrow account is not required under § 1026.35(b)(2)(v), which requires that an escrow account be established for an HPML that was originated under a forward commitment for sale (i.e., your organization will not hold the loan in portfolio) unless the loan is otherwise exempt (for example, it is a reverse mortgage) or the acquirer is also eligible for either the small creditor or the insured institution exemption; and
- The institution and its affiliates do not maintain an escrow for HPMLs, pursuant to § 1026.35(b)(2)(iii)(D)(1), unless: (a) the escrow was established after consummation as an accommodation to distressed consumers to assist such consumers in avoiding default or foreclosure, or (b) the escrow was established at a time when the institution may have been required by the regulation to do so, which would have occurred for an HPML escrow account on or after April 1, 2010, to 120 days from the effective date of the January 2021 Final Rule (the date of publication of the final rule in the Federal Register, expected in February 2021).
As a refresher, the HPML Escrow Rule requires that creditors establish an escrow account for certain first-lien HPMLs. HPML is defined in Regulation Z and generally means a closed-end consumer credit transaction secured by the consumer’s principal dwelling with an annual percentage rate (APR) that exceeds the average prime offer rate (APOR) for a comparable transaction as of the date the interest rate is set by (1) 1.5 percentage points or more for a first-lien transaction at or below the Freddie Mac conforming loan limit; (2) 2.5 percentage points or more for a first-lien transaction above the Freddie Mac conforming loan limit; or (3) 3.5 percentage points or more for a subordinate-lien transaction.
The following loans do not require escrow accounts under HPML rules:
- Transactions secured by shares in a cooperative
- Transactions to finance the initial construction of a dwelling
- Temporary or “bridge” transactions with terms of 12 months or less
- Reverse mortgages
- Transactions secured by subordinate liens
- Open-end credit (such as a home equity line of credit)
- Insurance premiums the consumer purchases that you do not require
Lastly, there are exemptions for small creditors operating in rural or underserved area. See the HPML Small Entity Compliance Guide here.
The rule takes effect immediately, see the final rule.
If you have any questions, please email me at bruce.rumbold@freedmaxick.com.