New escrow requirements were imposed by the Federal government upon mortgage loans considered higher-priced under 12 CFR § 1026.35 (a HPML) and secured by a primary lien on real property, requiring escrow accounts to be maintained for at least five years (see article entitled “The June 2013 CFPB Regulations” on our website; http://www.docutechcorp.com/the-june-2013-cfpb-regulations).
This requirement conflicts with Section 5 of the Illinois Mortgage Escrow Account Act (765 Ill. Comp. Stat. Ann. 910), which requires a lender to notify the borrower that an escrow account may be cancelled once the amount of a mortgage, secured by a single-family, owner occupied residential property, is reduced to 65% of its original amount. It is possible for the amount of a HPML to reach this percentage within five years of its existence, in which case Illinois would allow for the termination of the account, but Federal regulations would not.
765 Ill. Comp. Stat. Ann. 910/11 and Ill. Admin. Code tit. 38, § 1050.1110(f) require copies of the Act to be given to borrowers – once at the time of application, for certain loans (Cx1207) and once at closing (Cx16095) – so, for HPMLs, borrowers will be receiving a disclosure which specifies a cancellation time period, which is not always applicable.
We will be revising the text of Cx1207 and 16095 to help mitigate this discrepancy. Since these documents must contain exact copies of the Act, the provisions concerning the 65% reduction cancellation threshold may not be altered without making the documents non-compliant. However, we will be adding a new, disclaimer paragraph before the text of the Act, which will dynamically print if the loan is considered a Federal HPML and is a primary lien. The paragraph will state the following:
“Please Note: Your loan is considered a higher-priced mortgage loan under Federal regulations (particularly 12 CFR § 1026.35) and is subject to further (and possibly conflicting) escrow account restrictions than set forth in the Illinois Escrow Account Act. For example, an escrow account must be maintained on the loan for at least five years, regardless of the reduction of the original amount of the loan as set forth in Section 5 of the Act. You should consult with an attorney as to what your legal rights concerning escrow accounts are under both Federal regulations and the Act.”
This change will take effect on June 13, 2013. If you have any questions or concerns about these changes, please contact Client Support at 1.800.497.3584.
June 6, 2013