CFPB Adjusts HPML Asset Exemption Threshold

The CFPB recently issued a final rule increasing the asset exemption threshold for the Truth in Lending Act (TILA) requirement to maintain an escrow account for a higher-priced mortgage loan (HPML).

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Regulation Z, which implements the TILA, generally requires creditors to maintain an escrow account for the payment of taxes and insurance on a first lien HPML. There are two creditor-based exemptions to the escrow account requirement. The original exemption is for creditors with assets below a certain threshold that also meet additional criteria, which include (among other criteria) extending a first lien loan subject to the Regulation Z ability to repay rule (a “covered loan”) in a rural or underserved area and having a covered loan volume, with affiliates, at or below a certain level. The asset threshold is subject to annual adjustment based on inflation. For purposes of the asset threshold, a creditor’s assets include the assets of any affiliate that regularly extends covered loans. The asset threshold for 2024 is $2.640 billion. The final rule increases the asset threshold for 2025 to $2.717 billion. As a result, if a creditor’s assets, together with the assets of its applicable affiliates, are less than $2.717 billion on December 31, 2024, and the creditor satisfies the additional criteria, the creditor will be exempt from the escrow account requirement for HPMLs in 2025. Additionally, based on a grace period in the HPML rule, such a creditor will also be exempt from such requirement for purposes of any loan consummated in 2026 if the application was received before April 1, 2026.

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The asset size threshold for purposes of the original exemption from the HPML escrow account requirement also is one of the criteria that determines whether a creditor qualifies under the ability to repay rule to make loans based on the small creditor portfolio, and small creditor balloon payment, qualified mortgage loan provisions. As a result, for 2025 the $2.717 billion threshold will apply for purposes of determining if a creditor is a small creditor under such provisions.

The Economic Growth, Regulatory Relief, and Consumer Protection Act, adopted in 2018, required the CFPB to add an additional exemption from the HPML escrow account requirements for insured depository institutions and insured credit unions. The additional exemption applies to insured depository institutions and insured credit unions with assets at or below a certain threshold that also meet additional criteria, which include (among other criteria) extending a covered loan in a rural or underserved area and having a covered loan volume, with affiliates, at or below a certain level, that is lower than the level under the original exemption. The asset threshold for 2024 is $11.835 billion. The final rule increases the asset threshold for 2025 to $12.179 billion. As a result, if an insured depository institution’s, or insured credit union’s, assets are $12.179 billion or less on December 31, 2024, and the entity satisfies the additional criteria, the entity will be exempt from the escrow account requirement for HPMLs in 2025. Additionally, based on a grace period in the HPML rule, such an insured depository institution or insured credit union will also be exempt from such requirement for purposes of any loan consummated in 2026 if the application was received before April 1, 2026.