by C/A Staff
It has been long enough now that many of you may have forgotten, but back in 2018, the Economic Growth, Regulatory Relief and Consumer Protection Act (EGRRCPA) contained a HPML escrow relief provision (Section 108). On July 2, the CFPB finally delivered the proposal to implement this provision and deliver the relief to smaller banks and credit unions.
Before we get to who gets the relief, let’s first make sure that we all know exactly what a HPML loan is. A higher-priced mortgage loan (aka HPML loan) is a closed-end consumer loan secured by the consumer’s principal dwelling with an annual percentage rate that exceeds the average prime offer rate (APOR) for a comparable transaction as of the date the interest rate is set:
- By 1.5 or more percentage points for loans secured by a first lien with a principal obligation at consummation that does not exceed the limit in effect as of the date the transaction's interest rate is set for the maximum principal obligation eligible for purchase by Freddie Mac;
- By 2.5 or more percentage points for loans secured by a first lien with a principal obligation at consummation that exceeds the limit in effect as of the date the transaction's interest rate is set for the maximum principal obligation eligible for purchase by Freddie Mac; or
- By 3.5 or more percentage points for loans secured by a subordinate lien.
Now, let’s take a look at the details of the proposal:
The exemption will apply to any loan made by a bank or credit union that is secured by a first lien on the principal dwelling of a consumer if:
- the institution has assets of $10 billion or less;
- 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; and
- the following existing HPML escrow exemption criteria are also met:
- during the preceding calendar year, or, if the application for the transaction was received before April 1 of the current calendar year, during either of the two preceding calendar years, the creditor extended a consumer credit transaction secured by a first lien on a dwelling, or property attached to a dwelling, that is located in an area that is either “rural” or “underserved”; and
- the institution and its affiliates may not maintain an escrow account other than those established for first-lien higher-priced mortgage loans for which applications were received on or after April 1, 2010, and before May 1, 2016, or those established after consummation as an accommodation to distressed consumers to assist such consumers in avoiding default or foreclosure.
The proposal also brings forward the exclusion from exemption eligibility transactions involving forward purchase commitments if the purchasing bank/creditor does not satisfy the exemption conditions (asset size, first lien threshold, etc.).
The proposal was published in the Federal Register on July 22, 2020 with comments due by September 21, 2020.