small creditor exemption for escrow for HPMLs

Are there new criteria for small creditors to be exempt from the escrow requirements for high priced mortgage loans? I thought I heard, for example, if you don't already escrow, you meet one of criteria.

Take a look at Reg Z 1026.35(b)(2)(iii)(A) in BOL's Alphabet Soup, which has been updated with the updated wording from the new 9/13/13 final rule. http://www.bankersonline.com/regs/12-1026/12-1026-035.html

In essence, you get to look at any of the prior 3 years (instead of just the most recent year) to see if you met the "more than 50% in rural or underserved counties" test. Also the time window during which you may have set up escrows that won't count against you in 1026.35(b)(2)(iii)(D)(1) has been lengthened.

Thanks so much!

I've read the updated rule and am a little confused. So, if we had escrows in place before HPML came out, we are still not exempt from having to escrow.

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 on or after April 1, 2010, and before June 1, 2013; or

[Effective January 1, 2014, paragraph (1) is amended by the 9/13/13 final rule to read:]
(1) Escrow accounts established for first-lien higher-priced mortgage loans on or after April 1, 2010, and before January 1, 2014; or

Well, there is the other little exception --

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

But if you were routinely doing escrows before 4/1/2010 and still have any of those escrow accounts open (in addition to any you set up for distressed consumers), you don't meet the requirement and whether or not you're a small creditor otherwise, you'll have to establish conforming escrows for any HPML for which you receive an application on or after 1/1/2014.

That is what I thought. I don't know why I read too much into that. We've done escrows for years and have the capability for it and do not routinely make HPML transactions.

This is tripping me up. If you're a small creditor and were previously escrowing, you're not exempt? OR If you're a small creditor and were previously escrowing for HPMLs, you're not exempt? Which is correct?

Comment 35(b)(2)(iii)-1.iv. may help you:

1. Under § 1026.35(b)(2)(iii), except as provided in § 1026.35(b)(2)(v), a creditor need not establish an escrow account for taxes and insurance for a higher-priced mortgage loan, provided the following four conditions are satisfied when the higher-priced mortgage loan is consummated: ....

iv. The creditor and its affiliates do not maintain an escrow account for any mortgage transaction being serviced by the creditor or its affiliate at the time the transaction is consummated, except as provided in § 1026.35(b)(2)(iii)(D)(1) and (2). Thus, the exemption applies, provided the other conditions of § 1026.35(b)(2)(iii) are satisfied, even if the creditor previously maintained escrow accounts for mortgage loans, provided it no longer maintains any such accounts except as provided in § 1026.35(b)(2)(iii)(D)(1) and (2). Once a creditor or its affiliate begins escrowing for loans currently serviced other than those addressed in § 1026.35(b)(2)(iii)(D)(1) and (2), however, the creditor and its affiliate become ineligible for the exemption in § 1026.35(b)(2)(iii) on higher-priced mortgage loans they make while such escrowing continues. Thus, as long as a creditor (or its affiliate) services and maintains escrow accounts for any mortgage loans, other than as provided in § 1026.35(b)(2)(iii)(D)(1) and (2), the creditor will not be eligible for the exemption for any higher-priced mortgage loan it may make. For purposes of § 1026.35(b)(2)(iii), a creditor or its affiliate "maintains" an escrow account only if it services a mortgage loan for which an escrow account has been established at least through the due date of the second periodic payment under the terms of the legal obligation.

Then, look at Comment 35(b)(2)(iii)(D)(1)-1:

1. Exception for certain accounts. Escrow accounts established for first-lien higher-priced mortgage loans for which applications were received on or after April 1, 2010, and before January 1, 2014, are not counted for purposes of § 1026.35(b)(2)(iii)(D). For applications received on and after January 1, 2014, creditors, together with their affiliates, that establish new escrow accounts, other than those described in § 1026.35(b)(2)(iii)(D)(2), do not qualify for the exemption provided under § 1026.35(b)(2)(iii). Creditors, together with their affiliates, that continue to maintain escrow accounts established for first-lien higher-priced mortgage loans for which applications were received on or after April 1, 2010, and before January 1, 2014, still qualify for the exemption provided under § 1026.35(b)(2)(iii) so long as they do not establish new escrow accounts for transactions for which they received applications on or after January 1, 2014, other than those described in § 1026.35(b)(2)(iii)(D)(2), and they otherwise qualify under § 1026.35(b)(2)(iii).

We are a small creditor and are making our first mortgage loan (not by choice), we have not ever escrowed anything, and do not meet the definition of rural or underserved - must we escrow for this one-off loan?

To meet the small creditor exemption for HPML escrows you must meet all four criteria. From John's above post:

1. Under § 1026.35(b)(2)(iii), except as provided in § 1026.35(b)(2)(v), a creditor need not establish an escrow account for taxes and insurance for a higher-priced mortgage loan, provided the following four conditions are satisfied when the higher-priced mortgage loan is consummated: ....