“Devil Is in the Definitions” in CFPB Regulations
New escrow account requirement regulations are one of three Regulation Z changes set to take effect on June 1. In this month’s edition of News Now’s sister publication, Credit Union Magazine, Credit Union National Association compliance staff have warned that, in this case, the “devil is in the definitions.”
Reg Z currently requires creditors to establish escrow accounts for higher priced mortgage loans secured by a first lien on a borrower’s principal dwelling. Pending Consumer Financial Protection Bureau changes to the rule lengthen the time—from one year to five years—creditors must maintain a mandatory escrow account. The rule also exempts credit unions with less than $2 billion in assets that operate predominantly in rural or underserved areas and meet certain criteria.
CUNA Federal Compliance Counsel Colleen Kelly and CUNA Director of Compliance Information Valerie Moss advised credit unions to first understand the definitions of “higher-priced mortgage,” “dwelling,” “rural,” and “underserved” to help determine the impact this rule will have on their mortgage program or whether they may be exempt.
Credit unions that decide to close a higher-priced mortgage should then determine whether any of the exemptions apply. The CUNA compliance staffers noted that transactions secured by shares in a cooperative do not require escrow accounts.
Transactions to finance the initial construction of a dwelling, temporary or “bridge” loans with terms of 12 months or less, and reverse mortgages also do not require escrow accounts, they wrote.
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