Compliance News: New HPML Escrow Account Exemptions

On January 19, 2021 the Consumer Financial Protection Bureau (“CFPB”) published their final rule to amend “Regulation Z, which implements the Truth in Lending Act, as mandated by section 108 of the Economic Growth, Regulatory Relief, and Consumer Protection Act. The amendments exempt certain insured depository institutions and insured credit unions from the requirement to establish escrow accounts for certain higher-priced mortgage loans.” Their proposed rule was published in the Federal Register on July 22, 2020 (see 85 FR 44228 [2020]).

The amendments primarily impact the mandatory escrow account requirements applicable to certain HPMLs under 12 C.F.R. § 1026.35(b). While no specific disclosures are required, we do maintain data integrity errors which are triggered if no escrow account is established for most HPMLs.

The CFPB has now included a new Ibid. § 1026.35(b)(2)(vi) which holds that an insured depository institution or insured credit union need not establish an escrow account (with some exceptions) if such financial institutions:

• • Have assets of $10 billion or less (adjusted for inflation) during certain time periods;
  • Have extended no more than one thousand covered transactions secured by a first lien on a principal dwelling within certain time periods (including transactions extended by affiliates of such institutions); and
  • Extend a transaction which satisfies the criteria promulgated in § 1026.35(b)(2)(iii)(A) through (D).

This exemption does not apply, though, if such financial institutions have entered into a forward commitment with a purchaser who does not meet the same criteria for the exemption (see amended 12 C.F.R. Pt. 1026, Supp. I, Paragraph 35[b][2][v] – 1).

Because the new exemptions apply solely to attributes of the financial institution and not to the loan terms (i.e., we are not able to determine based on loan data whether this exemption will apply or not), we will not be making any changes to our errors at this time. However, we do wish to remind clients that if they believe the exemptions under 12 C.F.R. § 1026.35(b) do apply to them, they may contact our Client Support team (1.800.497.3584) to have these errors turned off.