CFPB Clarifies Rules on Escrow Account Repayment Options
Written By: Joel Palmer, Op-Ed Writer
The Consumer Finance Protection Bureau (CFPB) recently updated its FAQ section for compliance with Regulation X and Regulation Z. The updated FAQs address the sections on escrow accounts.
The updated FAQ section seeks to clarify questions on how mortgage servicers address shortages or deficiencies in annual escrow balances.
Last fall, CFPB included in its Supervisory Highlights information on Regulation X violations. Mortgage servicers had sent consumers annual escrow account statements that included the repayment options not specified in Regulation X.
Specifically, these statements informed mortgagees who had escrow account shortages or deficiencies that was greater than one month’s escrow payment, that they could repay the balance in a lump sum.
According to CFPB, Regulation X does not specify this as a repayment option. The only repayment option permitted by Regulation X, CFPB said at the time, was making equal monthly payments over a 12-month period to allow borrowers to catch up on their escrow shortage. The option of a lump sum payment was not permitted.
“Because the enumerated repayment options are exclusive, the servicers violated the regulatory requirements by sending disclosures that provided borrowers with repayment options that they cannot require under Regulation X,” the bureau wrote in that issue of Supervisory Highlights.
This interpretation of Regulation X created confusion among mortgage servicers, according to one national law firm.
“Many servicers that we have spoken with over the past few weeks have questioned the CFPB’s legal interpretation of Regulation X in this context,” wrote the Bradley law firm in a fall article on its Financial Services Perspectives website. “Moreover, those same servicers have expressed concern that the CFPB’s interpretation will result in borrower confusion and potentially remove a repayment option that many borrowers have long preferred. For the reasons discussed below, we agree on both counts.”
In CFPB’s updated FAQs, the bureau says that servicers can accept “unsolicited” lump sum payments to resolve an escrow account shortage. However, the servicer cannot require or provide the option of a lump sum payment on the annual escrow account statement.
Furthermore, those who are serving a mortgage are allowed to communicate to borrowers that they may voluntarily provide a lump sum payment to satisfy an escrow shortage. This is allowed, according to CFPB, “provided that the communication is not in the annual escrow account statement itself and does not appear to indicate that a lump sum payment is something that the servicer requires but rather is an entirely voluntary option.”
About the Author
As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
