As previously reported, the Economic Growth, Regulatory Relief, and Consumer Protection Act (Growth Act), passed in June 2018, created an exemption from the requirement to maintain an escrow account in connection with a higher-priced mortgage loan (HPML) for insured depository institutions and insured credit unions (insured creditors) that meet certain conditions. The CFPB recently adopted a final rule to implement the exemption. The CFPB also issued an executive summary of the rule, and an updated version of the TILA HPML Escrow Rule Small Entity Compliance Guide. The rule will become effective upon publication in the Federal Register, which the CFPB expects to occur in February 2021.
The HPML provisions in Regulation Z require that a creditor establish an escrow account for certain first lien HPMLs. While the HPML provisions already include an exemption for small creditors operating in rural or underserved areas that meet certain requirements, the exemption under the Growth Act is an additional exemption for qualifying insured creditors. Insured creditors that meet the following conditions qualify for the exemption:
- As of the preceding December 31st the insured creditor had assets of $10 billion or less (which dollar amount is subject to annual adjustment for inflation). For applications received before April 1 of the current calendar year, this condition is met if the insured creditor’s assets do not exceed the threshold on December 31st of either of the two preceding calendar years. (The pre-existing small creditor exemption has an inflation-adjusted asset threshold of $2.23 billion.)
- During the preceding calendar year the insured creditor and its affiliates together extended no more than 1,000 transactions subject to the Regulation Z ability to repay rule (covered transactions) secured by a first lien on a principal dwelling. For applications received before April 1 of the current calendar year, this condition is met if the insured creditor and its affiliates extended no more than 1,000 covered transactions secured by a first lien on a principal dwelling during either of the two preceding calendar years.
- During the preceding calendar year the insured creditor extended at least one covered transaction that was secured by a first lien on a property located in a rural or underserved area. For applications received before April 1 of the current calendar year, this condition is met if during either of the two preceding calendar years the insured creditor extended at least one covered transaction that was secured by a first lien on a property located in a rural or underserved area.
- The insured creditor and its affiliates do not maintain an escrow account for consumer credit transactions secured by real property or a dwelling, other than:
- Escrow accounts established after consummation as an accommodation to distressed consumers to assist such consumers in avoiding default or foreclosure, or
- Escrow accounts established at a time when the insured creditor was required to do so by the HPML provisions. The original HPML escrow account requirement became effective for loan applications received on or after April 1, 2010. Insured creditors that meet the other requirements for the new exemption will qualify for the new exemption if they cease establishing escrow accounts for HPML loans for which the applications are received on or after the 120th day following the effective date of the final rule implementing the new exemption.
Even if an insured creditor qualifies for the exemption from the escrow account requirement, if a 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.