[rcooper]

A question we received via email:

We closed an HPML without escrow and the borrower refuses to escrow now. What are our options? Is there a requirement we open and provide the initial disclosure within 30 days of the loan?

[rcooper]

Answer by Jack Holzknecht:

First make sure the loan is a higher priced mortgage loan (HPML). Is the transaction covered by Regulation Z? Is the loan secured by a first lien on a consumer’s principal dwelling? A temporary loan is exempt.

A creditor may not extend a HPML secured by a first lien on a consumer’s principal dwelling unless an escrow account is established before consummation. Your loan was apparently illegal when made. Your options to resolve this situation are limited.
•The terms of the note or mortgage may allow you to demand immediate repayment of the loan. Have bank counsel carefully review the terms of your loan documents before considering this action.
•You could lower the borrower’s rate to a level that assures the loan is no longer a HPML.
•You can live with the violation. If detected by examiners or auditors they would likely require a “cure,” probably in the form of a lower rate to eliminate the HPML status.

You were required to establish the escrow before consummation. The initial escrow disclosure required by RESPA can be delivered at closing or on a delayed basis.

[rcooper]

Answer by Jack Holzknecht:

First make sure the loan is a higher priced mortgage loan (HPML). Is the transaction covered by Regulation Z? Is the loan secured by a first lien on a consumer’s principal dwelling? A temporary loan is exempt.

A creditor may not extend a HPML secured by a first lien on a consumer’s principal dwelling unless an escrow account is established before consummation. Your loan was apparently illegal when made. Your options to resolve this situation are limited.
•The terms of the note or mortgage may allow you to demand immediate repayment of the loan. Have bank counsel carefully review the terms of your loan documents before considering this action.
•You could lower the borrower’s rate to a level that assures the loan is no longer a HPML.
•You can live with the violation. If detected by examiners or auditors they would likely require a “cure,” probably in the form of a lower rate to eliminate the HPML status.

You were required to establish the escrow before consummation. The initial escrow disclosure required by RESPA can be delivered at closing or on a delayed basis.

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