Wow.....nice reward for all the banks that wouldn't make an HPML until the escrow exemption came around.....and nice penalty for banks that escrowed only because we had to, then later discontinued escrow accounts when the small creditor exemption allowed it.

We do have about 2 dozen HPML loans, so we have always escrowed them, but because we did, we now have to escrow our flood loans. What are you talking about--there are never rewards for the banks.

There appears to be a reward for banks that wouldn't make HPMLs (because they didn't want to escrow) until the small creditor escrow exemption came around; then resumed making HPMLs once they didn't have to escrow. I'm still struggling to understand this. I've been under the impression for quite some time that we wouldn't have to escrow flood insurance because we have the small creditor escrow exemption.

I had assumed that it was just delayed for two years, which is fast approaching.

I still don't understand that part i quoted....what bank in the U.S. wasn't required to have an escrow account in 2012 if they originated an HPML? The fact that they didn't originate HPMLs doesn't take away the requirement????? That would be the same to me as an exemption for "states that had a 55 mph speed limit" exempting people who refused to own a car during that time period. The fact they didn't own a car didn't mean they weren't subject to the 55 mph speed limit.

raitchjay - this is complicated enough without going to such extremes. The idea is if you never escrowed and potentially don't even have that capability - you don't have to do it. Many banks did not choose to make HPMLs back then for that specific reason.

Randy, i thought when we discussed this a year or so back, that the consensus was if you were claiming the small creditor escrow exemption that we'd be exempt from escrowing for flood insurance as well. That idea seems to be flipped on its head now and i just want to make sure that everyone agrees.....

I'm not trying to go to extremes, i think my example sort of fits....i have a hard time fitting those banks that didn't make HPMLs into "was not required under Federal or State law to deposit taxes, insurance premiums, fees, or any other charges in an escrow account for the entire
term of the loan".

If they didn't make the loans, they were not required to escrow.

I don't have time to search back through old threads but banks who had made hpmls were stuck on the small creditor exemption, I do believe.

Those banks weren't required to escrow because they were exempt. They were exempt because they didn't make HPML loans. A small servicer enjoys that status because it hasn't grown to be a "growed up" servicer. Two different types of exemptions. But they are exemptions that the exempt party can manage. I don't see the problem.

John, we claimed the small servicer HPML escrow exemption once it became available. If we start escrowing for flood loans, don't we then also lose our HPML escrow exemption, and be back (against our will) to being a full-blown escrowing bank?

Yes, Russ, I believe that is correct, at least as section 1026.35(b)(2)(iii)(D) and section 1026.34(b)(1) are currently worded. It would, of course, be on a going-forward basis, effective with respect to HPMLs closed after the first escrow account is established for flood insurance.

There is one technical "out": a loan with mandatory flood insurance could be made and its servicing transferred before the due date of its second periodic payment and it would not disqualify the creditor for the HPML escrow exemption. See Comment 35(b)(2)(iii)-4.

Wasn't there a discussion last year about the meaning behind "for the entire term of the loan" (in relationship to the wording referenced earlier from the rule...i.e., the argument was that escrow accounts on HPMLs could be ended after 5 years, etc. and therefore might not meet that definition)? Sorry, i just need to exhaust all my resources before i break the news to management that "guess what, we're an escrowing bank again".

If a bank escrows insurance and taxes under the current HPML requirements, that escrow must be in place for a minimum of five years. Beginning 1/1/16, that bank will need to also escrow for any flood insurance premium or fees for that property. After the HPML escrow reaches its fifth anniversary and the borrower requests it be canceled, the lender will be able to cancel the HPML escrow (assuming there are no impediments to cancelation), but the flood escrow will remain in place for the rest of the loan's life unless a new flood map places the insured structures outside the designated flood hazard area and the lender agrees to allow the coverage to be canceled.

John, i should have been more clear. The rule states that creditors with less than $1 billion in assets are exempt from the escrow requirement for flood insurance if, on or before July 6 2012, the institution: in the case of a loan secured by
residential improved real estate or a mobile home, was not required under Federal or State law to deposit taxes, insurance premiums, fees, or any other charges in an escrow account for the entire term of the loan.

Is there any wiggle room (to claim the escrow exemption in this flood rule) in those last 6 words for a bank such as mine that currently claims the HPML small creditor escrow exemption but DID originate and escrow for HPMLs while that was the requirement is my question i guess.

I would only wiggle through that crack with a signed written legal opinion from my own attorney.

I didn't register what you meant awhile ago Kathleen, but now i do. We WERE able to claim the small creditor HPML escrow exemption even though we DID, for a time, escrow for HPMLs. The rule (like you, i don't really have the time to go back and find all the details right now) did give you a loophole by basically saying that escrow accounts opened only to comply with HPML requirements didn't count against you when determining whether the bank "escrowed" or not as a matter of business.

So that's why i guess it's odd to me that these rules are different....the HPML small creditor exemption anticipated that there were banks who were only escrowing because the HPML rules said we had to and gave us the opportunity to get out of escrowing if we chose the exemption; while this rule seems to think that the only people who need the exemption are those who didn't make HPMLs until they could claim the small creditor escrow exemption. It seems as though they would have and could have gone the simpler route of saying "if you currently are exempt from escrowing HPMLs, you don't have to escrow for flood either".....

Randy..thanks for the advice.

After reading through this...I'm glad this bank never escrowed...ever! I'm fairly certain that definitely means we don't have to now.

It would be nice for many of you if the wording should have been on or before after July 6 2012 and it's just a mistake! I could see it happen!

The regulators hands were tied on a lot of this as the wording is straight from the Act. Once again, Congress got way to specific.

Not unless you grow to over a billion bucks in assets, RRJoker. That will take a while unless you acquire another bank.

Well, right...but this one is a LONG way from that so long as it's not scooped up at some point ::shudder::

I'm just bumfuzzled by it: a lot of references seem to be to the HPML escrow rule; so you'd think they'd treat the small creditor escrow exemption the same way the HPML rule did and not discriminate against small creditors who tried their hand at escrowing. But they seem to only want to give relief to banks who never escrowed; thereby ruining the very exemption Reg. Z gave for those banks...it's a double-edged sword.

They really really really want flood insurance to be escrowed so that people are covered in event of a flood. That is the whole essence of this. To keep from giving out disaster funds.

I guess so Kathleen. We have 8 flood loans on the books; my understanding is come January (or is it March?) we have to give those customers (if secured by a dwelling, and nearly every one of those is) the option to escrow. If even one of them says yes, then any HPML we make after that has to be escrowed, and down the tube goes our exemption.