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#1807017 - 04/22/13 07:01 PM Exemption confusion!!
RebekahL CRCM Offline
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RebekahL CRCM
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Big Sky Country
Ugh, this exception stuff is seriously messing up my brain. Here's where I'm at so far:

1) My bank DOES meet the loan volume and asset size requirements.

2) My bank DOES predominantly operate in a rural / underserved area.

3)(Here's where my understanding starts to implode) My bank establishes escrows for our HPMLs. We ALSO occasionally establish escrows for loans we sell to the secondary market. We continue to service those sold loans. Some sold loans may be HMPLs, some aren't.

Because we occasionally establish escrows for non-HPMLs that we service after sale to the secondary market, is it therefore true the we will NOT qualify for the exemption?

Basically, we'd have to cease ALL escrowing (except for HOEPA or distressed borrower loans)?

I'm trying to simplify this as much as possible! Thanks for your help!
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#1807023 - 04/22/13 07:08 PM Re: Exemption confusion!! RebekahL CRCM
rlcarey Online
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Sounds like you pretty much have a handle on it. Except for this statement "HOEPA or distressed borrower loans" - I think you meant HPMLs.
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#1807082 - 04/22/13 08:32 PM Re: Exemption confusion!! RebekahL CRCM
RebekahL CRCM Offline
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Thanks Randy. The HOEPA reference came from the CFPB Small Entity Compliance Guide issued 4/18/13 on the TILA Escrow Rule. On pages 13-14 here the CFPB wrote:

"For creditors that meet the loan volume and size and the rural or underserved requirements to qualify for the exemption, there is one additional requirement. You and your affiliates cannot maintain escrows on or beyond the second installment due date for any loans you service, with two exceptions (Comment 1026.35(b)(2)(iii)-1.iv):

1. Existing escrow accounts you or your affiliates maintain to comply with the Federal Reserve Board’s 2008 final rule implementing changes to Regulation Z pursuant to authority granted under the Home Ownership and Equity Protection Act (2008 HOEPA final rule), as long as you and your affiliates do not escrow for transactions covered by the TILA Escrow Rule for which you receive an application on or after June 1, 2013 (other than for distressed consumers as noted below)

2. Escrow accounts you or your affiliates establish after consummation for distressed consumers."

Me-thinks they messed up, as I can't find anything about HOEPA in 1026.35!

OK, so assuming they indeed meant HPMLs, I have more questions!

Provided we met all the requirements for the exemption, would we or would we not escrow for HPMLs? What exactly would we be exempted FROM?

It seems like we'd be exempted from having to escrow for HPMLs in the first place. But what if we did anyway? Would it just be our choice? Would that then be a "voluntary escrow" that would kick us out of the exemption?

I'm taking myself in circles!
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#1807092 - 04/22/13 08:42 PM Re: Exemption confusion!! RebekahL CRCM
raitchjay Online
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Rebekah, i'm pretty much in the same boat as you it sounds like in regards to trying to gain the exemption. Here's my take on it: if you have escrow accounts in place after June 1 of this year that are HPMLs originated prior to June 1, 2013 (and after whatever date that was that the HPML escrow rule originally went into place)(and btw...i think the confusion comes because the original HPML rules are considered....i think....to have originated under the "HOEPA" rules), then those escrow accounts are ok in regards to trying to claim the exemption. The ones that aren't ok would be your voluntary escrow accounts, etc. Those ones would need to be ended by June 1, 2013 in order to claim the exemption. Then, if you are able to claim the exemption, you CAN'T escrow for ANY HPMLs after June 1 if you want to maintain the exemption. Open an escrow account for any HPMLs originated after June 1, 2013 (or open any voluntary escrow accounts) and you lose the exemption. After June 1, 2013, it's all or nothing when it comes to escrowing your 1st lien HPMLs--either forego the exemption and escrow all of them, or claim the exemption and escrow none of them. That's how i am interpreting it anyway.
Last edited by raitchjay; 04/22/13 08:44 PM.
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#1807107 - 04/22/13 09:05 PM Re: Exemption confusion!! RebekahL CRCM
RebekahL CRCM Offline
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Thanks, that helps! It just seems so backwards... escrow all or escrow none. I fail to see how such rigidness helps the consumer, as it places bank interests (meeting exemption requirements) over what may be best for the consumer. I can see it now -- the customer asks to establish an escrow to better manage their cash flow, and the bank has to deny them, lest we lose our exemption. Smooth move, DFA.

Or maybe this is their way of backhandedly getting banks to continue escrowing, since the exemption is so non-sensical. cry
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#1807113 - 04/22/13 09:15 PM Re: Exemption confusion!! RebekahL CRCM
raitchjay Online
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I think they want you to escrow all; they're just giving banks that claim they're too small to do so efficiently an out. In a way, i can see it: if you're able to manage voluntary escrow accounts, then you shouldn't (so the argument goes) be able to argue "but we're too small to escrow for HPMLs".
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#1807157 - 04/23/13 12:28 PM Re: Exemption confusion!! RebekahL CRCM
RR Joker Offline
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In the discussion of why they created this exemption, they explained that until you have at least 500 escrow accounts, they are not cost-effective.

If you have the ability to escrow properly and the staff to maintain it...I would keep it. If you don't, like my current FI...you would be able to make HPML loans going forward without the one thing that has kept so many from it...escrow.
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#1807646 - 04/24/13 04:08 PM Re: Exemption confusion!! RebekahL CRCM
lilbit Offline
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The question has been asked to me about making HPML loans under the exemption. Our bank will fall into the category for the rural and underserved exemption. Does this mean that we will be allowed to make loans that will technically be a HPML but just not be required to escrow? We currently do not make HPML loans and do not escrow but upper management wanted clarification as to whether we could make loans with rates that make it a HPML but still be exempt from the escrow requirement.

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#1807656 - 04/24/13 04:25 PM Re: Exemption confusion!! RebekahL CRCM
raitchjay Online
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Yes, you could originate 1st lien HPMLs without the requirement to establish an escrow account if you meet the rural/underserved test. You'd still need to follow the other requirements for HPMLs found in Sec. 34 and 35.
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#1807883 - 04/25/13 01:30 AM Re: Exemption confusion!! raitchjay
theloanbug Offline
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We begin escrowing for HPML's when an it was mandatory, but we are also in a rural area, does this mean we can stop escrowing now for HPML's if we do not have the volume, but continue escrowing for the ones I already have now?

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#1807909 - 04/25/13 12:53 PM Re: Exemption confusion!! RebekahL CRCM
rlcarey Online
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You can't stop escrowing for HPMLs until the new rules are effective, but yes.
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#1809423 - 04/30/13 04:32 PM Re: Exemption confusion!! RebekahL CRCM
Compl101TX Offline
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If we qualify for the exemption, what will happen to the current HPML escrows?

Will the one year cancellation period still be in place after june?
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#1809431 - 04/30/13 04:35 PM Re: Exemption confusion!! RebekahL CRCM
Compl101TX Offline
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I think another thread answered my questions.
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#1810442 - 05/02/13 07:43 PM Re: Exemption confusion!! RebekahL CRCM
ahkcompliance Offline
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I went to a seminar yesterday and now I am a little more confused. We meet all of the elements of small creditor. We currently do escrow for HPMLs (only have two) and also voluntary escrow if borrowers want it.

The presenter told us that if as of June 1 we meet the definition of small creditor we need to either decide if we are or are not going to escrow for HPMLs. We need to pick one or the other.

She also said that if a borrower wants to establish a volunatary escrow on a non-HPML that it would be acceptible? My understanding was that if we are currently escrowing for non-HPML transactions that we would not meet the exemption requirements.

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#1810455 - 05/02/13 07:56 PM Re: Exemption confusion!! RebekahL CRCM
raitchjay Online
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My understanding flies in the face of what your presenter is saying. Not only can you not establish voluntary escrow accounts after June of this year if you want to claim the exemption, but you must not have any existing voluntary escrow accounts on your books as of June either. Then, if you are able to claim the exemption, all or nothing going forward when it comes to escrowing for 1st lien HPMLs. Again, this is my understanding of it and what i've been communicating to my CEO. If i'm wrong about that, hopefully someone will say so.
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#1810471 - 05/02/13 08:05 PM Re: Exemption confusion!! RebekahL CRCM
ahkcompliance Offline
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That is how I always understood it as well. It really won't affect us much. We only have 2 HPMLs on the books now but want to be prepared if we do make one that we follow the correct rules. I think since we are capable of escrowing and we do set up voluntary escrow accounts we will just require escrow for 1st lien HPMLs.

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#1810473 - 05/02/13 08:09 PM Re: Exemption confusion!! RebekahL CRCM
raitchjay Online
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I'm in the process of trying to have *the* talk with my CEO...if we want to claim the exemption, we need to quickly end the voluntary escrow accounts that we have on our books (maybe 8-10). We originate lots of HPMLs too.
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#1810488 - 05/02/13 08:32 PM Re: Exemption confusion!! RebekahL CRCM
ahkcompliance Offline
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Good luck! We have a bunch of voluntary esrows on the books (100 or more) so I think it be a nightmare to end those. We will just keep on doing our currnet practice.

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#1810490 - 05/02/13 08:41 PM Re: Exemption confusion!! RebekahL CRCM
raitchjay Online
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Good luck to you as well.
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#1811308 - 05/06/13 04:53 PM Re: Exemption confusion!! ahkcompliance
ccman Offline
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Same here, as we have escrowed for HPML's and other first lien loans. Since we have set the system in place, there is no reason to stop the practice regardless of whether the bureau expands the excemption or not. Actually, borrowers seem quite willing to accept the escrowing for taxes and insurance. Just one less worry off their minds.

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#1811431 - 05/06/13 07:31 PM Re: Exemption confusion!! RebekahL CRCM
Compnerd Offline
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Ada, OK
I was confused about the HOEPA reference too - And from what I understand they just put it there to cross - reference the previous Fed rule?? Didnt make sense to me, seems they have HOEPA and HPML mixed up.

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#1811432 - 05/06/13 07:33 PM Re: Exemption confusion!! RebekahL CRCM
Compnerd Offline
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Ada, OK
I had a followup question on this: So does the 1026.35(b)(3) cancellation of escrow rules apply to us for escows already established by us since April 2010 thru May 31 2013? In other words will the 1 year time period for cancelling escrows still apply for applications we receive prior to June 1 OR will we have to go by the "NEW" cancellations rules and wait 5 years even though a loan may have closed in January 2013?

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#1811495 - 05/06/13 09:28 PM Re: Exemption confusion!! RebekahL CRCM
RebekahL CRCM Offline
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Compnerd, my understanding is that HPMLs made BEFORE 6/1/13 will still have a 1 year cancellation period. The rule's effective date says: "The rule is effective June 1, 2013. Its requirements apply to transactions for which creditors receive applications on or after that date." So, I take that to mean that the 5 year escrow requirement will pertain to HPMLs with loan application dates of 6/1/13 or later.

In digging through the breakdown of the rule (page 63 of the Preamble in the CFPBs version here ), I found this little gem:

"The only expansion of substantive requirements under this final rule is the extension from one to five years of the minimum duration generally applicable to escrow accounts required by the rule. The Bureau believes that even this expansion of the protection afforded consumers by escrow accounts will impose at most a modest increase in compliance burden for creditors because it simply extends an otherwise already applicable requirement by four additional years. Even this minimal additional burden will not be encountered by any creditor until at least one year after the rule’s effective date, when cancellation of mandatory escrow accounts otherwise first would have become permissible for the earliest higher-priced mortgage loans to be made after this final rule takes effect."

This certainly seems to reinforce that the 5 year time period is NOT retroactively applied to existing HPMLs made prior to 6/1/13.
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#1811613 - 05/07/13 02:28 PM Re: Exemption confusion!! RebekahL CRCM
Compnerd Offline
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RebakahL, Thanks for your response. This is exactly how I was reading this that Loans we received applications for prior to 6/1/13 remain subject to the 1 year time period for escrows, rather than the new longer period. However, the guy I spoke to at the CFPB confused me by stating that the cancellation rules & other conditions apply to existing escrows we maintain.

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#1813432 - 05/10/13 09:33 PM Re: Exemption confusion!! RebekahL CRCM
RSC Offline
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I found this forum to be very helpful Thanks everyone!! I do have one question. Do we have to end escrows for loans by June 1, 2013 that we restructured and required to be escrowed? Loan originally was not a HPML.

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