21-RA-05: CFPB Rule Expands Exemption from Establishing Escrow Accounts for Higher-Priced Mortgage Loans
March 2021
NCUA issued Regulatory Alert 21-RA-05 to provide FICUs information on the CFPB’s expansion of the exemption for qualifying banks and credit unions from the requirement to establish escrow accounts for certain higher-priced mortgage loans (HPMLs). The CFPB rule amends parts of Regulation Z §1026.35 and became effective February 17, 2021.
New § 1026.35(b)(2)(vi) exempts from the HPML escrow requirement any loan made by an insured bank or credit union secured by a first lien on a consumer’s principal dwelling if:
- As of the preceding December 31, the FICU assets of $10 billion or less;
- During the preceding calendar year, the FICU and its affiliates extended no more than 1k covered transactions secured by a 1st lien on a principal dwelling;
- During the preceding calendar year, the FICU extended at least one covered transaction that was secured by a 1st lien on a property located in a rural or underserved area; and
- The FICU and its affiliates do not maintain an escrow account for consumer credit transactions secured by real property or a dwelling, other than:
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- Escrow accounts established after consummation as an accommodation to distressed consumers to assist avoiding default or foreclosure, or
- Escrow accounts established at a time when the FICU may have been required to do so by the HPML provisions. (The original HPML escrow account requirement became effective for loan applications received on/after April 1, 2010. FICUs otherwise meeting the other requirements will qualify for the new exemption if they cease establishing escrow accounts for HPML loans for which applications are received on or after June 17, 2021.
Qualifying institutions that have established HPML escrow accounts on or after April 1, 2010, will have until June 17, 2021 to cease providing escrows for HPMLs to take advantage of the new exemption.
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.