If we have a residential loan applicant owner occupied, property free and clear purchased for $1,500,000 and customer want a cash out of $500M (great LTV). Due to the APR and rate calculation the loan is high price loan. Due to the LTV, would the customer still need escrows??

Yes, if it's an HPML you must require a one year escrow. There are no exceptions for "great LTV" sorry.

"Yes, if it's an HPML you must require a one year escrow."

That statement might be a little misleading. You are required to establish an escrow account. The borrower after one year can request that it be cancelled, and the bank may or may not allow it to be cancelled. The bank cannot only set up the escrow account for one year or cancel the escrow account without a proper request from the borrower.

Thank you, that is exactly what I thought, but I wanted an opinon.

Agreed. One year minimum, bank MAY allow the borrower to request cancellation after one year.

Under section 226.35(b)(3)(v), you may find an escrow exception. For jumbo loans, you can use a rate spread of 2.5 over the APOR to determine whether you would need to escrow on a HPML.