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CFPB Issues Final Rule on Higher-Priced Mortgage Loan Escrow Exemption

On January 19th, the CFPB released a final rule that exempts certain depository institutions and credit unions from some requirements for establishing an escrow account on Higher-Priced Mortgage Loans (“HPML”).  The final rule implements Section 108 of the Economic Growth, Regulatory Relief and Consumer Protection Act passed in 2019.

The final rule provides an exemption to insured depository institutions and credit unions if the institution has assets of $10 billion or less and 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.  The exemption only applies to loans secured by a first-lien loan on a primary dwelling, and only when certain additional criteria are also met:

  • The institution originated a covered transaction in the prior year that was secured by a lien on property in a rural or underserved area;
  • The loan will be held in portfolio or the acquirer of the loan also meets the same exemption criteria, and;
  • The institution and its affiliates do not otherwise hold escrow accounts for HPMLs except where:
    • The escrow account was established after consummation to assist a borrower in avoiding default or foreclosure
    • The escrow account was established at a time when the institution may have otherwise been required to establish an escrow account for an HPML, e.g., from the original requirement to the new exemption.

The final rule is effective upon its publication in the Federal Register, and provides for a 120-day period after the effective date for institutions to stop providing HPML escrow accounts in order to qualify for the exemption provided by the rule.

The rule is expected to be published in the Federal Register in February 2021.  However, as the rule had not yet been published at the time of the recent memorandum from Ron Klain, President Biden’s Chief of Staff, directing a freeze to all unpublished regulations, its status is not clear until such publication.

Should you have any questions, please contact the DocMagic Compliance department.