WASHINGTON — The burden on small banks from a new escrow rule for higher-priced mortgages should be relatively small, according to guidance released by the Consumer Financial Protection Bureau on Friday.
The agency released a guide designed to serve as a "plain-language" summary of its mortgage rules that were released in January. The 21-page summary mostly clarifies which lenders are exempt from a rule that requires creditors to hold an escrow account on higher-priced mortgages for at least five years rather than the current one year requirement.
The CFPB said smaller lenders are exempt if: they do not originate more than 500 first-lien loans in the preceding calendar year; and have less than $2 billion of assets. Lenders must also have more than half their portfolio of loans to consumers in rural or underserved counties based on originations of last year.
The agency clarified Friday that lenders can use loans in both types of counties together in order to qualify. A preliminary list of exempt counties has been posted at the CFPB's website. A formal list will be up before the rule applies to mortgage applications beginning June 1.
Despite the exemptions, community bankers in particular have argued that the rule will come at a higher cost to their operation and cause some to pull back on making higher-priced loans. But the CFPB says there should be little impact overall because most lenders are used to holding escrow accounts.
"The compliance burden on creditors for maintaining escrow accounts for additional time for loans where no exemptions apply should be minimal," the CFPB said in its new guide. "Since creditors are already maintaining escrow accounts for a larger set of transactions for a shorter period of time under the current rule, the bureau anticipates that to comply with this rule, many creditors will generally have to make only modest changes to their servicing systems and processes, internal controls, subservicer contracts, or other aspects of their business operation."
The agency did caution at the end of the guide, however, that lenders may need to reassess their operations and seek guidance from the legal or compliance officer to make sure they can meet the new rule.
"The new requirements may affect a number of parts of your business systems and processes. For example, the servicing department will need to calculate termination dates for escrow accounts for higher-priced mortgage loans covered by the rule," the CFPB said. "Fully understanding the changes required may involve a review of your existing business processes and recordkeeping regimes, as well as the hardware and software that you, your agents, or other business partners use."