Regulation Z’s escrow requirements for HPMLs generally apply to both property taxes and insurance, subject to the exceptions below.

Regulation Z provides that a creditor may not extend an HPML “secured by a first lien on a consumer’s principal dwelling unless an escrow account is established before consummation for payment of property taxes and premiums for mortgage-related insurance required by the creditor.” Consequently, for first lien HPMLs, we believe that your borrowers must escrow for all mortgage-related insurance that your bank requires. However, escrow accounts do not need to be established for mortgage-related insurance that your customers may voluntarily obtain.

Additionally, Regulation Z exempts from the HPML escrow requirements loans secured by shares in a cooperative, loans financing the initial construction of a dwelling, bridge loans with terms of twelve months or less or reverse mortgage loans. An escrow account for insurance premiums also is not required for loans secured by condominium units where a governing association is obligated to maintain a master policy insuring all units.  

For resources related to our guidance, please see:

• Regulation Z, 12 CFR 1026.35(b)(1) (“Except as provided in paragraph (b)(2) of this section, a creditor may not extend a higher-priced mortgage loan secured by a first lien on a consumer’s principal dwelling unless an escrow account is established before consummation for payment of property taxes and premiums for mortgage-related insurance required by the creditor, such as insurance against loss of or damage to property, or against liability arising out of the ownership or use of the property, or insurance protecting the creditor against the consumer's default or other credit loss. . . .”)

• Regulation Z, Official Interpretations, Paragraph 35(b)(1), Comment 2 (“Section 1026.35(b)(1) does not require that an escrow account be established for premiums for mortgage-related insurance that the creditor does not require in connection with the credit transaction, such as earthquake insurance or credit life insurance, even if the consumer voluntarily obtains such insurance.”)

• Regulation Z, 12 CFR 1026.35(b)(2) (“Notwithstanding paragraph (b)(1) of this section: (i) An escrow account need not be established for:

• (A) A transaction secured by shares in a cooperative;
• (B) A transaction to finance the initial construction of a dwelling;
• (C) A temporary or ‘bridge’ loan with a loan term of twelve months or less, such as a loan to purchase a new dwelling where the consumer plans to sell a current dwelling within twelve months; or
• (D) A reverse mortgage transaction subject to § 1026.33.

(ii) Insurance premiums described in paragraph (b)(1) of this section need not be included in escrow accounts for loans secured by dwellings in condominiums, planned unit developments, or other common interest communities in which dwelling ownership requires participation in a governing association, where the governing association has an obligation to the dwelling owners to maintain a master policy insuring all dwellings.”)