Compliance Outlook

Escrow Requirements of

Regulation Z

CFPB Escrow Requirements

CFPB introduces Escrow Requirements amending Reg. Z

January 10, 2013

Effective Date: June 1, 2013

CFPB Escrow Requirements

Definitions:

Higher Priced Mortgage Loan –A closed-end loan secured by a principal dwelling with an APR that exceeds the average prime offer rate for a comparable transaction as of the date the interest rate is set.

CFPB Escrow RequirementsDefinitions:APR Difference from Average Prime Offer–

An APR 1.5% or more higher than the average prime rate offer for principal amounts that do not exceed Freddie Mac limits;

By 2.5% or more for principal amounts that exceed Freddie Mac limits; or

By 3.5% or more for loans secured by subordinate liens.

CFPB Escrow RequirementsDefinitions:Dwelling –

Structures that are classified as personal property under State law:

• Manufactured homes, boats, and trailers.

CFPB Escrow RequirementsDefinitions:

Average Prime Rate Offer –Annual percentage rate derived from average interest rates, points, and other loan pricing terms currently offered to consumers by a representative sample of creditors for mortgage transactions that have low-risk pricing characteristics.

CFPB Escrow Requirements

Escrow Account Requirements

Escrow account must be established

and maintained for a minimum of 5 years.

CFPB Escrow RequirementsMandatory Escrow Requirements

Property taxes,

Hazard insurance,

Liability insurance, and

Private mortgage insurance.Insurance

CFPB Escrow RequirementsExempt Mortgage Products

Reverse mortgages,

Loan transactions secured by shares in a cooperative,

Construction loans, and

Bridge loans.

CFPB Escrow RequirementsCommunity Association Exemption

Escrow only required for property tax, not hazard insurance premiums.

CFPB Escrow RequirementsSmall Credit Union Exemption

1. Asset size less than $2 billion;

2. Make more than half first-lien mortgages in rural or underserved areas during the previous calendar year;

3. Together with its affiliates, originated 500 or fewer first-lien mortgages during the preceding calendar year; and

4. Together with its affiliates, not escrow for any mortgage it or its affiliates currently services, except in limited instances.

CFPB Escrow RequirementsRural Area:County is not in a metropolitan statistical area or in a micropolitan statistical area that is adjacent to a metropolitan statistical area.

Underserved Area:County HMDA data reports that no more than two creditors extend covered transactions secured by a first lien, five or more times in the past year.

CFPB Escrow RequirementsMember Escrow Cancelation

• Loan is paid off; or

• Member requests termination:

5 years after loan origination;

80% or less loan to value; and

Member is not delinquent.

Thank you for joining me for this overview of the Compliance Outlook.

Stay Tuned……..