Yes, we believe that a bank may terminate an escrow account on the borrower’s request before the outstanding mortgage loan balance is reduced to 65% of the original loan amount, provided that an escrow account is not otherwise required.

An escrow account may be otherwise required, for example, “in conjunction with mortgages insured, guaranteed, supplemented, or assisted by the State of Illinois or the federal government that require an escrow arrangement,” and higher-priced mortgage loans must maintain escrow accounts for at least five years after consummation (unless the underlying loan has terminated). In such cases, the borrower would be ineligible to terminate the escrow account.

For resources related to our guidance, please see:

• Mortgage Escrow Account Act, 765 ILCS 910/5 (“When the mortgage is reduced to 65% of its original amount by payments of the borrower, timely made according to the provisions of the loan agreement secured by the mortgage, and the borrower is otherwise not in default on the loan agreement, the mortgage lender must notify the borrower that he may terminate such escrow account or that he may elect to continue it until he requests a termination thereof, or until the mortgage is paid in full, whichever occurs first.”)

• Mortgage Escrow Account Act, 765 ILCS 910/7 (“The borrower shall not have the right to terminate any such arrangement under Section 5 in conjunction with mortgages insured, guaranteed, supplemented, or assisted by the State of Illinois or the federal government that require an escrow arrangement for their continuation.”)

• Regulation Z, Higher-Priced Mortgage Loan Provisions, 12 CFR 1026.35(b)(3)(i) (“Except as provided in paragraph (b)(3)(ii) of this section, a creditor or servicer may cancel an escrow account required in paragraph (b)(1) of this section only upon the earlier of: (A) Termination of the underlying debt obligation; or (B) Receipt no earlier than five years after consummation of a consumer’s request to cancel the escrow account.”)