CFPB proposes escrow exemption for higher-priced mortgage loans

by Ryan Smith07 Jul 2020

The Consumer Financial Protection Bureau has proposed a rule that would exempt certain insured depository institutions and credit unions from the requirement to establish escrow accounts for certain higher-priced mortgage loans (HPMLs). The notice of proposed rulemaking is the bureau’s last mandatory rulemaking to implement the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA).

Generally, HPMLs are closed-end consumer-credit transactions secured by the borrower’s principal dwelling, with an annual percentage rate that exceeds the average prime offer rate for a comparable transaction by specific amounts. Usually, first-lien HPMLs are required to have escrow accounts under Regulation Z of the Truth-in-Lending Act (TILA).

The proposed amendment to Regulation Z would exempt from that requirement any loan made by an insured depository institution or insured credit union and secured by a first lien on a principal dwelling if:

  • The institution has assets of $10 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
  • Certain other criteria are met

The CFPB said that the proposed rule would further the goals of the EGRRCPA “by reducing costs associated with escrow requirements.”

The CFPB noted in its proposal that the number of banks and credit unions likely to be affected by the rule is small, since the institutions could only originate 1,000 loans a year or fewer while remaining exempt.

“However, in localized areas some newly exempt community banks and small credit unions may increase mortgage lending to consumers who may be underserved at present,” the CFPB said.