Along with the flood regulations, High Priced Mortgage Loans are the only time that the regulations require a bank to escrow for a loan. Minus the list of exemptions, the flood regulations require escrow for flood insurance premiums but the HPML escrow requirement is the one time that the regulation requires the bank to escrow taxes and hazard insurance. Of course, there are exemptions to the escrow requirements for HPMLs as well. These exemptions have been updated with the issuance of this final rule.
The final rule regarding HPML Escrow exemption modifies the current requirements to the HPML escrow rules. §1026.35(b)(2)(vi) is changing so that escrow would not be required if: (1) the institution has assets of $10 billion or less; (2) 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 (3) certain of the existing HPML escrow exemption criteria are met.
The Regulation Z exemption criteria that the statute includes in the new exemption are: (1) the requirement that the creditor extend credit in a rural or underserved area (§1026.35(b)(2)(iii)(A)); (2) the exclusion from exemption eligibility of transactions involving forward purchase commitments (§ 1026.35(b)(2)(v)); and (3) the prerequisite that the institution and its affiliates not maintain an escrow account other than either (a) those established for HPMLs at a time when the creditor may have been required by the HPML escrow rule to do so, or (b) those established after consummation as an accommodation to distressed consumers (§ 1026.35(b)(2)(iii)(D)). This part of the rule has been adjusted in the final rule to be 120 days from the effective date to qualify for the exception instead of the 90 days that was suggested in the proposed rule. This would allow small institutions that often lack the resources to adjust to new compliance requirements quickly extra time to comply with the final rule.
Ultimately, the changes to the HPML escrow exemptions are becoming a bit broader and easier to qualify for than the exemption that exists currently under § 1026.35(b)(2)(iii). The total asset threshold to qualify for the exemption is increasing from $2 billion to $10 billion. Additionally, with the change in dates for when the bank made a HPML loan with escrow is also changing from May 1, 2016 to 120 days from the rule’s effective date which would help many more banks qualify for the exemption. Even if your bank does not qualify under these revised exemptions, we are here to help you continue escrowing for these high-priced mortgage loans. We also have some tools that would help you in this process – you can find the C/A Escrow Account Procedures here and the C/A Escrow Account Cheat Sheet here .