Big Mortgage Escrows: Be prepared for the CFPB’s new escrow rules for higher-priced mortgages

In addition to other regulatory changes affecting how mortgage lenders have to handle escrow requirements, the Dodd-Frank Wall Street Reform Act amended Regulation Z (the Truth in Lending Act) to require creditors to establish escrow accounts for higher-priced mortgage loans secured by a first lien on a principal dwelling which are not otherwise exempt under the rule. In January, the Consumer Financial Protection Bureau issued additional Regulation Z rules for escrow accounts. As such, the TILA Escrow Rule became effective for loan applications received on or after June 1, 2013. It determined that a loan is “higher-priced” if:

Regulation Z requirements

The Dodd-Frank Act amended Regulation Z to require servicers to establish escrow accounts for higher-priced mortgage loans secured by a first lien on a principal dwelling. Regulation Z escrow rule changes are effective for loan applications received on or after June 1, 2013. When escrow accounts are required under the new rules, they must be established and maintained under the Regulation X rules discussed above.

Servicers must address the following key requirements for covered loans:

The Regulation Z amendments also clarify that servicers do not have to escrow insurance payments for homeowners in common interest communities where the governing body is required to purchase master insurance policies. The changes also exempt from the escrow requirement loans made by small lenders that operate predominantly in rural or underserved counties, as long as the lenders are not subject to forward commitments for sale to nonexempt creditors.

Regulation Z exemptions 

Under the TILA Escrow Rule, escrow accounts do not need to be established for:

Loans held in portfolio by an organization that operates predominantly in rural or underserved counties and meets certain size and operational criteria may be exempt from the TILA Escrow Rule. The CFPB has issued lists of recognized rural or underserved counties that meet the definition.

Regulation Z—best practices

Mary Thorson and Kris Welch  are vice presidents with Chartwell Compliance.


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