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Sep 02, 2010
Categories: Consumer Lending

Escrow Accounts for Manufactured Homes; This and That

Posted by Anthony Demangone

I'm sure many of you are aware that, beginning on October 1, 2010, credit unions will need to escrow for loans secured by a first lien to purchase manufactured loans that will be the principal residence of the borrower - if the loan qualifies as a higher-priced mortgage loan. The requirement applies to loans for which the credit union received an application on or after October 1, 2010.

I hate having to write sentences like that, but with all of the qualifications inside of regulations, you really have to sometimes.

So, what escrow rules would apply?  The Official Staff Interpretations point you to RESPA.  But let me highlight some additional language.

35(b)(3) Escrows.

Paragraph 35(b)(3)(i). 

1. Section 226.35(b)(3) applies to principal 

dwellings, including structures that are 

classified as personal property under state 

law. For example, an escrow account must be 

established on a higher-priced mortgage loan 

secured by a first-lien on a mobile home, boat 

or a trailer used as the consumer’s principal 

dwelling. See the commentary under 

§§ 226.2(a)(19), 226.2(a)(24), 226.15 and 

226.23. Section 226.35(b)(3) also applies to 

higher-priced mortgage loans secured by a 

first lien on a condominium or a cooperative 

unit if it is in fact used as principal 

residence.

2. Administration of escrow accounts. Section 226.35(b)(3) requires creditors to 

establish before the consummation of a loan 

secured by a first lien on a principal dwelling 

an escrow account for payment of property 

taxes and premiums for mortgage-related 

insurance required by creditor. Section 6 of 

RESPA, 12 U.S.C. 2605, and Regulation X 

address how escrow accounts must be 

administered.

A member noticed a possible disconnect here.  Not all loans for manufactured homes are subject to RESPA.  Note, Regulation Z indicates that you have to escrow for structures that are classified as personal property, but let's say that personal property is simply parked in someone's back yard?  If the credit union doesn't have a lien on the real property, the loan for the structure isn't subject to RESPA. 

So, do you still have to comply with RESPA's escrow rules, even though the loan itself may not be subject to RESPA? 

We spoke with one of the attorneys who drafted the rule.  She indicated that the rule clearly mandates escrow accounts as we highlighted above. But if the manufactured loan isn't subject to RESPA, credit unions that follow RESPA's escrow rules will enjoy a safe harbor.  The Fed simply didn't want to create a brand new escrow system out of whole cloth when one already exists.

Mind you, there's no mention of the escrow safe harbor in the rule itself, but the Fed's position made sense. 

 ***

NAFCU Members: The September issue of the NAFCU Compliance Monitor is now available.

TCCUSGP.  NCUA has extended the expiration date of NCUA’s Temporary Corporate Credit Union Share Guarantee Program from September 30, 2012, to December 31, 2012.



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