If an HPML loan has mandatory escrow, we understand it cannot cancel 365 days after escrow originated anymore. We understand we have to wait now 5 years, plus meet other criteria.

On an HPML loan with mandatory 5 year escrow, which also has additional real estate as security:

do we have to escrow the additional collateral also?
if we do, can we release the additional collateral prior to the mandatory 5 years?

The mandatory escrow requirements only apply to the consumer's primary residence. 1026.35(b).

If the HPML was on your books prior to the effective date (6/1/13) of the rule changing the mandatory escrow term to five years, the one-year term continues in force.

Loan scenario - 4 applicants on the loan. Young husband and wife are purchasing their 1st house (their new primary residence). Older dad and mom are co-applicants on the loan and they have pledged a 1st lien against their existing primary residence. HPML applies. Do we need to have HPML set up on both properties since 1st lien on ?consumer's" primary residence?

I would say yes.

I am amazed that banks will enter into such transactions in which not one, but two family homes are put in jeopardy. Unless the mom and dad are extremely wealthy - but if they were, why take their home also.

It is just plain and simple. Junior and his wife don't qualify to buy a home yet.

I agree. All 4 are borrowers on this transaction and they have pledged their primary residences as collateral on a HPML.

I have a potentially different take on the piece of collateral that is not the principal dwelling. I see the requirement to escrow as a loan based requirement, not as a requirement that is specific to a particular piece of property. The Regulation states:

[Except as provided in paragraph (b)(2) of this section, a creditor may not extend a higher-priced mortgage loan secured by a first lien on a consumer's 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. For purposes of this paragraph (b), the term “escrow account” has the same meaning as under Regulation X (12 CFR 1024.17(b)), as amended.]

In a situation where a 1st lien exists on a principal dwelling and there is another piece of real estate that secures the loan, it would seem that escrow would need to be maintained for both properties. A principal dwelling is secured by a 1st lien; therefore, escrow of property taxes, etc. is required. Nowhere is this restricted ONLY to the principal dwelling. Thoughts and Rebuttals welcome

Has anyone said anything differently?

Yes, the thoughts expressed above by @Dan indicated that only the principal residence property is subject to HPML Escrow.