One of our LO's was attempting to explain about the mandatory escrow for HPML loans to a customer. The customer's loan will be a HPML loan subject to escrow on/after 4/1/2010.

Customer stated that he would rather just pay us the amounts that we would have to escrow for at the time the loan is refinanced. LO did not know how to respond to this.

I think that the proper response would be "Unfortunately, the Bank will still have to escrow in the usual manner for at least the first year, since the revised regulation requires this.".

Any thoughts?

Escrow for HPMLs only applies to applications taken on or after 4/1/2010. The escrow requirements are not retroactive for loans made before the effective date.

Thank you.

As I clearly stated, this customer's loan will be an HPML covered loan when it refinances on/after 4/1/2010. When this occurs, this customer is stating that he wants to simply pay us the amounts which would be subject to escrow instead of having us calculate the additional amounts that he would be required to pay in addition to the P & I payments when he refinances his loan on/after 4/1/2010.

If it is a HPML, you MUST escrow. Not an option. There are very strict escrow rules under RESPA. I'm not understanding what your customer wants. If he was to pay you the additional amount, isn't that the same as escrowing?

I am not sure I understand the situation. If the loan has already been made (or will be made in the very near future), the HPML requirements do not apply, since the application date is obviously before 4/1/2010.

If the customer plans to refinance the loan on or after 4/1/2010, you will need to make the HPML determination based upon the APOR rate that applies to the loan at the time the rate is set on the new application. It may turn out that the new loan is not an HPML.

However, as was pointed out in the previous post, if an HPML is made (with an application date on or after 4/1/2010), there is no option, either on the part of the customer or the lender, to not escrow.

David, thanks for your response.

I also don't know what the customer is getting at. I think he may just be contrary or possibly did not like the idea of the Bank telling him that he was going to have to pay amounts over and above P & I monthly so that his taxes and hazard insurance could be paid by the Bank at a later date.

I think that there is going to be a long "learning curve" for some customers just as there will be for some bankers.

You are so right! Tell them to write the Representatives.

Is escrow required for both tax and insurance or can a bank just escrow for taxes? I'm not clear on that. Oh, I see that escrow is for property tax and mortgage related insurance premiums required by the lender.

My understanding is that we MUST escrow for City & County property taxes along with hazard and, if applicable, flood insurance. No "if's, and's or but's".

Hope this helps.

I'm too confused on the escrow requirment. At this time, we are only escrowing with regard to property taxes. The section 35 requirement is a little unclear:

(3) Escrows--(i) Failure to escrow for property taxes and insurance. Except as provided in paragraph (b)(3)(ii) of this section, a creditor may not extend a loan secured by a first lien on a principal dwelling unless an escrow account is established before consummation for payment of property taxes and premiums for mortgage-related insurance required by the creditor, such as insurance against loss of or damage to property, or against liability arising out of the ownership or use of the property, or insurance protecting the creditor against the consumer's default or other credit loss.

When it says "premiums for mortgage related insurance....such as insurance against loss of or damage to property"...is that meaning home owners insurance? Does this also cover PMI IF we required it? If this does mean home owners insurance...then can someone tell me plainly where to find it in the official commentary or rules?

That is homeowner's insurance.




That is PMI.

Thanks Dan.