Compliance Blog

On January 19, the Consumer Financial Protection Bureau (CFPB) issued their final rule amending the higher-priced mortgage loan (HPML) escrow rule. The final rule expands the exemption for establishing escrow accounts for HPMLs as required by the 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA).

Currently, section 1026.35(b)(2)(iii) provides for a small creditor exemption to the HPML escrow requirement. As explained in the HPML Escrow Small Entity Compliance Guide, a credit union qualifies for the small creditor exemption if:

• The credit union originated at least one covered transaction secured by a first lien on a property located in a rural or underserved area in the preceding calendar year (or in the year preceding that calendar year for applications received prior to April 1 of the current calendar year).
• The credit union and its affiliates originated 2,000 or fewer first lien mortgage loans that were sold, assigned, or otherwise transferred to another person, in the prior calendar year;
• The credit union’s asset size is under $2.23 billion; AND
• The credit union does not currently escrow for mortgage loans.

If the credit union meets all of these requirements, the regulation exempts the credit union from the escrow requirements for HPML loans.

The new rule will implement a new section to the regulation, providing an insured institution exemption for the HPML escrow requirement. An “insured credit union” will qualify for the new exemption if:

• The credit union’ asset size was $10 billion or less for the preceding year;
• The credit union and its affiliates originated 1,000 or fewer first lien mortgages secured by  member principal dwellings during the preceding year;
• The credit union originated at least one covered transaction secured by a first lien on a property located in a rural or underserved area in the preceding calendar year; AND
• The credit union does not currently escrow for mortgage loans.

If the insured credit union meets all of these requirements, the regulation exempts the credit union from the escrow requirements for HPML loans.

The new insured institution exemption is similar to the small creditor exemption, with the biggest difference being the asset threshold and the loan threshold. The official interpretation to section 1026.35(b)(2)(vi)(B) describes the two main differences for the loan thresholds. First, the small creditor exemption sets a threshold of 2,000 loans secured by first liens on a dwelling, while the insured institution exemption sets a threshold of 1,000 loans secured by first liens on a principal dwelling. Second, the small creditor exemption threshold of 2,000 loans only includes loans that were sold, assigned, or otherwise transferred to another person, while the insured institution exemption threshold of 1,000 loans includes all loans originated, regardless of whether the loan was sold or kept in the credit union’s portfolio.

The final rule will be effective on the day the rule is published in the Federal Register. The CFPB has already released an Executive Summary and has updated the HPML Escrow Small Entity Compliance Guide to reflect the new regulatory exemption.

It is also important to note the Biden administration issued a memo to hold pending regulations until new appointees have reviewed them. The memo also ordered that certain rules that have not yet published in the Federal Register be withdrawn until reviewed and approved by Biden appointees. This rule has not yet published, so it seems it may be held pending action by the new administration.