Like before reported, the Economic Growth, Regulatory Relaxation and Consumer Protection Act (Growth Act), also known as S.2155, directs the CFPB to implement an exemption from the requirement to compulsory escrow account for higher priced mortgages (HPML) under the Truth in Loans Act (TILA) and Regulation Z for certain credit unions and insured deposit institutions. The CFPB recently proposed changes to regulation Z in accordance with this directive. In line with recent practice, the CFPB has also published a Red line showing the changes that would be made to Regulation Z.
Currently, Regulation Z provides an exemption from the escrow requirement for HPML that applies to a creditor who:
- With its affiliates regularly granting senior loans subject to the repayment capacity rule (covered transactions), have total assets of less than $ 2.0 billion (the dollar amount is adjusted annually based on inflation, and for 2020 is $ 2,202,000);
- With its affiliates who regularly extend transactions covered by the first lien, during the previous calendar year or, for requests received before April 1 of the current year, during either of the previous two calendar years, have extended a maximum of 2,000 transactions covered by the first lien that have been sold, assigned or otherwise transferred to another person;
- Does not, nor its affiliate, maintain mortgage escrow accounts, other than escrow accounts established (a) for an HPML first lien for which the request was received on or after April 1, 2010 and before May 1, 2016, or (b) as an accommodation to a distressed consumer to help the consumer avoid default or foreclosure; and
- In the previous calendar year or, for requests received before April 1 of the current year, in either of the two preceding calendar years, extended a first transaction covered by a lien on a property located in a “rural” or “underserved” area, as those terms are defined for the purposes of the HPML rules. We recently reported on a CFPB rule of interpretation how underserved areas are determined.
A loan granted by a lender eligible for the exemption would not be entitled to the exemption if, at consumption, the loan is subject to a commitment to be acquired by a party who does not meet the conditions of the exemption .
The proposal would implement a similar exemption for credit unions and insured deposit-taking institutions, the main differences being as follows:
- The asset threshold would be $ 10 billion (and would be adjusted annually for inflation); and
- During the preceding calendar year or, for requests received before April 1 of the current year, during either of the two preceding calendar years, the fund or deposit institution and its affiliates could not have extended more than 1,000 transactions covered by a first lien on a principal home.
Further, the exclusion of the condition that the Creditor and its Affiliate do not maintain escrow accounts on mortgages for accounts established for an HPML first lien for which the request was received on or after April 1, 2010 and before May 1, 2016, would be revised by replacing the date of May 1, 2016 with a date that falls 90 days after the publication of the final rule in the Federal Register. This time limit would also apply to the current exemption.
Comments on the proposal will be due 30 days after its publication in the Federal Register.