CFPB Rule Expands Exemption from Establishing Escrow Accounts for Higher-Priced Mortgage Loans

Dear Boards of Directors and Chief Executive Officers:

On February 17, 2021, the Consumer Financial Protection Bureau published in the Federal Register a final rule implementing a requirement of the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA). The final rule exempts certain insured depository institutions, including some insured credit unions, from the requirement to establish escrow accounts for certain higher-priced mortgage loans (HPMLs).¹

The final rule, which amends parts of §1026.35 of Regulation Z, became effective February 17, 2021.² Qualifying institutions that have established HPML escrow accounts on or after April 1, 2010, will have 120 days after the effective date of the final rule to cease providing escrows for HPMLs to take advantage of the new exemption.

The HPML provisions of Regulation Z require that a creditor establish an escrow account for certain first-lien HPMLs. While the HPML provisions include an exemption for small creditors operating in rural or underserved areas that meet certain requirements, the exemption under the EGRRCPA is an additional exemption for qualifying insured credit unions. Insured credit unions that meet all of the following qualify for the exemption:

1. As of the preceding December 31, the insured credit union had assets of $10 billion or less, adjusted annually for inflation.³ For applications received before April 1 of the current calendar year, this condition is met if the insured credit union’s assets do not exceed the threshold on December 31 of either of the two preceding calendar years;
2. During the preceding calendar year, the insured credit union and its affiliates together extended no more than 1,000 covered transactions secured by a first lien on a principal dwelling. For applications received before April 1 of the current calendar year, this condition is met if the insured credit union and its affiliates extended no more than 1,000 covered transactions during either of the two preceding calendar years;
3. During the preceding calendar year, the insured credit union extended at least one covered transaction that was secured by a first lien on a property located in a rural or underserved area. For applications received before April 1 of the current calendar year, this condition is met if during either of the two preceding calendar years the insured credit union extended at least one covered transaction that was secured by a first lien on a property located in a rural or underserved area; and
4. The insured credit union and its affiliates do not maintain an escrow account for consumer credit transactions secured by real property or a dwelling, other than:
   1. Escrow accounts established after consummation as an accommodation to distressed consumers to assist such consumers in avoiding default or foreclosure, or
   2. Escrow accounts established at a time when the insured credit union may have been required to do so by the HPML provisions. The original HPML escrow account requirement became effective for loan applications received on or after April 1, 2010. Insured credit unions that meet the other requirements will qualify for the new exemption if they cease establishing escrow accounts for HPML loans for which the applications are received on or after the 120^th day following February 17, 2021.

Even if an insured credit union qualifies for the exemption from the escrow account requirement, if, at consummation, the transaction is subject to a forward commitment for sale to a purchaser that does not qualify for an exemption from the escrow account requirement, an escrow account is required under the HPML provisions, unless the transaction is otherwise exempt from the requirement.

Additional Information

If you have questions about the information in this Regulatory Alert, please contact the NCUA’s Office of Consumer Financial Protection at 703.518.1140 or ComplianceMail@ncua.gov. You can also contact your NCUA regional office or your state supervisory authority.