Alert April 16, 2013

CFPB Issues Proposal to Clarify Escrow Rule

The CFPB issued a proposal to clarify and make technical amendments to the escrow rule it finalized in January (see January 22, 2013 Alert). The final escrow rule changed the escrow maintenance provisions and required creditors to establish and maintain escrow accounts for at least five years after originating a higher-priced mortgage loan. The escrow rule also exempted small creditors that meet certain conditions, such as operating predominantly in rural or underserved areas and originating 500 or fewer yearly first-lien mortgages, from the escrow requirement. The proposal clarifies the determination method for "rural" and "underserved" areas. In particular, the CFPB noted that it intended to require creditors to make determinations of "rural" or "underserved" status and for the CFPB to publish an annual list of counties that creditors may rely upon as a safe harbor. The CFPB also proposed technical amendments to the tests used to determine "rural" and "underserved." For example, a county is considered "underserved" during a calendar year based on HMDA data for "the preceding calendar year" instead of "that calendar year" as stated in the final escrow rule. The proposal also keeps in place protections for higher-priced mortgage loans until other similar provisions become effective in January 2014 to avoid a six-month period when those protections do not apply.