Proposal would exempt many banks, credit unions from escrow requirements for higher-priced mortgage loans

Financial institutions with assets of $10 billion or less and that originate 1,000 or fewer mortgage loans would be exempted from a requirement to establish escrow accounts for certain higher-priced mortgage loans (HMPL), under a proposal issued Thursday by the federal consumer financial protection agency.

The proposal issued by the Consumer Financial Protection Bureau (CFPB) adds a new provision that would exempt from the Regulation Z (loan originator compensation and steering regulation) 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 the financial institution met three criteria. The bureau said those are:

  • the institution has assets of $10 billion or less, adjusted for inflation;
  • 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 of the existing HPML escrow exemption criteria are met, as described in the proposal.

The bureau noted that, in proposing the rule, it had commenced its last mandatory rulemaking to implement the 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA, S.2155).

“In general, HPMLs are closed-end consumer credit transactions secured by the consumer’s principal dwelling with an annual percentage rate that exceeds the average prime offer rate for a comparable transaction by specific amounts as of the date the interest rate is set,” the bureau stated in a release. “For the most part, first-lien HPMLs must have escrow accounts.” The proposal, however, would change that under the circumstances noted above.

CFPB asserted the proposed amendment to its rules would “further the goals EGRRCPA by reducing costs associated with escrow requirements.”

Comments will be due 60 days after the proposal is published in the Federal Register.

Consumer Financial Protection Bureau Issues Proposed Rule on Escrow Exemptions for Certain High-Priced Mortgage Loans