As previously reported, the Economic Growth, Regulatory Relief, and Consumer Protection Act (Growth Act), also known as S.2155, directs the CFPB to implement an exemption from the mandatory escrow account requirement for higher-priced mortgage loans (HPMLs) under the Truth in Lending Act (TILA) and Regulation Z for certain insured credit unions and insured depository institutions. The CFPB recently proposed amendments to Regulation Z pursuant to this directive. Consistent with recent practice, the CFPB also issued a non-official redline showing the changes that would be made to Regulation Z.

Currently Regulation Z provides an exemption to the escrow requirement for HPMLs that applies to a creditor that:

• Together with its affiliates that regularly extend first lien loans subject to the ability to repay rule (covered transactions), have total assets of less than $2.0 billion (the dollar amount is adjusted annually for inflation, and for 2020 is $2,202,000);
• Together with its affiliates that regularly extend first lien covered transactions, during the preceding calendar year or, for applications received before April 1 of the current year, during either of the two preceding calendar years, extended no more than 2,000 first lien covered transactions that were sold, assigned or otherwise transferred to another person;
• Does not, nor does its affiliate, maintain escrow accounts on mortgage loans, exclusive of escrow accounts established (a) for a first lien HPML for which the application was received on or after April 1, 2010 and before May 1, 2016, or (b) as an accommodation to a distressed consumer to assist the consumer in avoiding default or foreclosure; and
• During the preceding calendar year or, for applications received before April 1 of the current year, during either of the two preceding calendar years, extended a first lien covered transaction on property located in a “rural” or “underserved” area, as those terms are defined for purposes of the HPML rules. We recently reported on a CFPB interpretive rule addressing the manner in which underserved areas are determined.

A loan made by a lender that qualifies for the exemption would not be entitled to the exemption if at consummation the loan is subject to a commitment to be acquired by a party that does not meet the conditions of the exemption.

The proposal would implement a similar exemption for insured credit unions and insured depository institutions, with principal differences being that:

• The asset threshold would be $10 billion (and would be adjusted annually for inflation); and
• During the preceding calendar year or, for applications received before April 1 of the current year, during either of the two preceding calendar years, the credit union or depository institution and its affiliates could have extended no more than 1,000 covered transactions secured by a first lien on a principal dwelling.

Additionally, the exclusion from the condition that the creditor and its affiliate not maintain escrow accounts on mortgage loans for accounts established for a first lien HPML for which the application was received on or after April 1, 2010 and before May 1, 2016, would be revised by replacing the May 1, 2016 date with a date that is 90 days after the final rule is published in the Federal Register. This time period would also apply to the current exemption.

Comments on the proposal will be due 30 days after publication in the Federal Register.