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CFPB Proposes New Escrow Rule

Monday, July 6, 2020

The Consumer Financial Protection Bureau (Bureau) today issued a notice of proposed rulemaking (NPRM) that would amend Regulation Z of the Truth-in-Lending (TIL) Act. The rule would provide a new exemption for some insured depository institutions and insured credit unions from the requirement to establish escrow accounts for certain higher-priced mortgage loans (HPMLs).  Under Regulation Z, some insured depository institutions and credit unions are required to set up escrow accounts for specified higher-priced mortgage loans (HPMLs). These are closed-end residential loan transactions with an annual percentage rate that exceeds the current average prime offer rate for a comparable transaction by specific amounts. In setting up this escrow requirement, the 2008 Dodd-Frank Act generally adopted a similar rule the Federal Reserve had made in 2005 specifically targeting subprime loans. However Dodd-Frank excluded certain loans, such as reverse mortgages, from the escrow requirement and gave the Consumer Financial Protection Bureau (CRPF), which had rule-making authority, permission to exempt smaller creditors and those operating "predominantly" in rural or underserved areas.

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