Regulation Z includes a requirement that creditors establish an escrow account for certain higher-priced mortgage loans (“HPMLs”) and provides certain exemptions from this requirement. Section 108 of the 2018 Economic Growth, Regulation Relief, and Consumer Protection Act (“EGRRCPA”) mandates the Consumer Financial Protection Bureau (the “CFPB”) issue regulations to add a new escrow account exemption for transactions by certain insured depository institutions and insured credit unions. Institutions covered include those meeting specific criteria of asset size, lending activity and other requirements such as lending in rural or underserved areas.
In accordance with the statutory directive of the EGRRCPA, the CFPB recently issued a Notice of Proposed Rulemaking that proposes to amend Regulation Z by adding a new exemption (§ 1026.35(b)(2)(vi)) from HPML escrow requirements. The new exemption would apply to any loan made by an insured depository institution or insured credit union that is secured by a first lien on the principal dwelling of a consumer if:
- The institution has assets of $10 billion or less. This amount is subject to an annual threshold adjustment. Previously, the exemption was limited to institutions with assets of $2 billion or less.
- 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. This threshold is half the limit in the existing regulation exemption and does not exclude portfolio loans from the total. Also, HPMLs committed to be purchased by a creditor who does not meet all of these criteria would not be eligible for the exemption.
- Certain of the existing HPML escrow exemption criteria are met. The institution extends credit in a rural or underserved area, the institution may not currently maintain an escrow account except as they would be required to under the current exemption, or for assisting distressed borrowers.
Comments on the proposed rule are being accepted until September 21, 2021. The CFPB’s Press Release can found on their website here.
