I read the TILA Adjustment to Asset-Size Exemption Threshold in the Federal Register posted by the CFPB today and have a question regarding the examples given under the Requirements for Exemption section. In section 1(i)(B)(2), it gives an example of an exemption based on the 2015, 2016 and 2017 reporting years. If the creditor did not extend a covered transaction in 2016 but did in 2015, the creditor could still claim the HPML escrow exemption in 2017 as long as the covered application was received prior to April 1, 2017.

1. We did not have a covered transaction for 2019 but we did have some in 2018. I am assuming that as long as we receive a covered transaction application prior to April 1, 2020 that is in a rural/underserved area, then we can claim the exemption for 2020 and will not need to escrow for any HPML loans in 2020, is that correct?

2. If we originate HPML loans between 1/2/2020 and 3/4/2020 and are required to escrow because they are not in a rural/underserved area but we then receive an application on March 5, 2020 in a rural/underserved area which allows us to claim the HPML escrow exemption, what happens to the loans we originated between 1/2/2020 and 3/4/2020 as we were required to escrow when originated? Do we just cancel the escrow accounts? I am just trying to wrap my head around the 3-month grace period.

Maybe I completely misinterpreted this.

Thanks.

You've misinterpreted it.

1. No. The HPML loan application received prior to 4/1/2020 doesn't have to be secured by property in a rural/underserved area. You need a covered transaction in either 2018 or 2019 that is secured by a first lien on a property in an area that is either "rural" or "underserved." Then, if you also meet the criteria in 1026.35(b)(2)(iii)(B), (C) and (D), you would not need to escrow for taxes or insurance on an HPML loan applied for before 4/1/2020.

2. Your second question is moot based on the first answer.

Got it. Thanks John

One more question regarding the HPML exemption for small creditors......we have to escrow on originated HPML loans this year as we did not meet the minimum 1 loan originated in a rural/underserved area in 2019. However, if we meet this requirement this year does that mean in 2021 we can go back to being exempt from the HPML escrow requirement? I just want to make sure we can 'flip' in and out of this exemption.

Thanks.

It is a one way street as this requirement must also be met:

(D) Neither the creditor nor its affiliate maintains an escrow account of the type described in paragraph (b)(1) of this section for any extension of consumer credit secured by real property or a dwelling that the creditor or its affiliate currently services, other than:

(1) Escrow accounts established for first-lien higher-priced mortgage loans for which applications were received on or after April 1, 2010, and before May 1, 2016; or

(2) Escrow accounts established after consummation as an accommodation to distressed consumers to assist such consumers in avoiding default or foreclosure.

Do I have this correct then:

1. Originate a HPML loan in 2020 - no more exemption from escrows going forward
2. Don't originate a HPML loan in 2020 but originate a loan in a rural/underserved, we can be exempt from escrows for 2021

Thanks!

That is correct. Once you have a loan with an escrow account that doesn't meet the previous citation, there is no going back. If you originate one in 2020 with escrows, you are done.

Okay, thanks Randy!