Alert explains requirements for HPML escrow exemptions

(March 12, 2021) Requirements for exemptions for some credit unions from establishing escrow accounts for certain high-priced mortgage loans (HPMLs) are outlined in a “regulatory alert” sent Wednesday from NCUA.

The message from the agency noted that in February the CFPB published its final rule that provides the exemption for smaller banks and credit unions. The rule exempts from the HPML escrow requirement any loan made by a bank or credit union and secured by a first lien on the principal dwelling of a consumer if:

  • the institution has assets of $10 billion or less (as of Dec. 31 in the preceding year);
  • 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
  • certain of the existing HPML escrow exemption criteria are met.

The rule was proposed in July. At that time, the CFPB said it represents the last mandatory rulemaking to implement the 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA, S.2155).

Wednesday’s “alert” notes that qualifying institutions that have established HPML escrow accounts on or after April 1, 2010, will have 120 days after the Feb. 17 effective date of the final rule to cease providing escrows for HPMLs to take advantage of the new exemption.

The HPML provisions of Regulation Z require that a creditor establish an escrow account for certain first-lien HPMLs,” the alert states. “While the HPML provisions include an exemption for small creditors operating in rural or underserved areas that meet certain requirements, the exemption under the EGRRCPA is an additional exemption for qualifying insured credit unions.”

However, the alert also notes some caveats. It states that even if an insured credit union qualifies for the exemption from the escrow account requirement, “if, at consummation, the transaction is subject to a forward commitment for sale to a purchaser that does not qualify for an exemption from the escrow account requirement, an escrow account is required under the HPML provisions, unless the transaction is otherwise exempt from the requirement.”

NCUA Regulatory Alert 21-RA-05: CFPB Rule Expands Exemption from Establishing Escrow Accounts for Higher-Priced Mortgage Loans