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Beginning June 1, 2013, financial institutions originating higher-priced mortgage loans (HPMLs) on residential structures will have to extend escrow account durations for consumers under a final rule issued by the Consumer Financial Protection Bureau (CFPB).
Driven by the CFPB’s mission to strengthen consumer protection, the new rules are designed to help:
The final rule, resulting from amendments to the Truth in Lending Act (Regulation Z) established by the Dodd-Frank Act, lengthens the time frame for which an escrow account should be maintained for HPMLs. It will now be extended to a minimum of five years, up from the current requirement of one year. Consumers will have the opportunity to remove the escrow after this five-year time allotment if they have not been delinquent in payments and the loan value is less than 80 percent of the original property value.
Be aware that having additional years of the escrow account will impact the costs associated to extending maintenance.
Although the new rule will apply to many, not every creditor and transaction will be impacted by the escrow account modifications. The rule defines and expands upon several exemptions, including:
Transaction Exemptions – The following transactions are exempt from obliging to the statute’s escrow requirements:
Creditor Exemptions – Creditors who operate in predominantly rural or underserved areas are exempt if they:
Existing Exemption Expansion – Expanding on existing exemptions related to escrowing insurance premiums for condominium units, the new rule includes an exemption for instances where an individual’s policy is covered by a master insurance policy.
With any regulatory change come adjustments. To avoid penalties and potential punitive damage claims by consumers related to ineffectively implementing the regulation, be proactive in accommodating the change at your financial institution by:
Even if your institution is exempt from this rule, but still escrows for higher-priced mortgages today, you may need to rethink your current escrow program to accommodate applications received on or after June 1, 2013, to remain exempt.
To learn more about what you can do to prepare for the regulatory change, contact our dedicated Financial Institutions Group, with regulatory compliance specialists in Michigan, Houston and Ft. Lauderdale.
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