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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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