Compliance Blog

Last week, the CFPB published a few frequently asked questions (FAQs) documents regarding consumer protection rules. This blog post from last week discusses the Regulation E FAQs document that was issued. Today’s blog will discuss the Real Estate Settlement Procedures Act (RESPA) FAQs document, which describes a few of the requirements found in Part 1024 or Regulation X. The document contains a lot of information, but I will highlight just a few of the FAQs here.

We’ve occasionally received questions about the use of short year escrow statements under Reg X. Question 8 under the subsection “Escrow Accounts: General” describes the effect of using a short year escrow statement. As a reminder, section 1024.17(i)(4) provides: “By using a short year statement a servicer may adjust its production schedule or alter the escrow account computation year for the escrow account.” In other words, if a credit union would like to adjust the account computation year, perhaps to align all borrowers to the same schedule, it can do so by ending the current computation year early and sending a short year escrow statement. The bureau also describes situations that trigger a requirement to send a short year statement, such as transfer to another servicer or an account payoff.

The bureau also issued guidance on how credit unions should handle escrow account shortages in questions 4-6 under the section “Escrow Accounts: Deficiencies, Shortages, and Surpluses.” Section 1024.17(f)(3) provides that for an escrow shortage, the repayment options will depend on the amount of the shortage. For a shortage less than one month’s payment, a credit union:

(1) may allow the shortage to exist,

(2) may require the borrower to repay the shortage within 30 days, or

(3) may require the borrower to repay the shortage in equal monthly payments over at least a 12-month period.

However, for a shortage equal to or greater than one month’s payment, a credit union:

(1) may allow the shortage to exist, or

(2) may require the borrower to repay the shortage in equal monthly payments over at least a 12-month period.

It is important to note that for a shortage equal to or greater than one month’s payment, a credit union is not permitted to require a member to repay the shortage in a lump sum, or within 30 days. This also means that a credit union is not permitted to list a lump sum payment option on the escrow statement which shows the shortage and describes the options for resolving it. For members that are able and willing to repay the shortage with a lump sum payment, the CFPB clarifies that a credit union may accept an unsolicited lump sum payment, or communicate that a voluntary lump sum payment may be made, so long as it is not listed on the escrow statement or communicated in any way that would suggest it is required.

For more information on the requirements of RESPA’s escrow rules, credit unions can review the entire FAQs document. Additionally, credit unions may want to review the Escrow Disclosure Public Guidance Documents, found on the Bureau’s Mortgage servicing webpage and the RESPA webpage under the “additional materials” section.