No, we are not aware of a model Illinois Mortgage Escrow Account Act notice that references Regulation Z’s additional requirements for canceling escrow accounts associated with HPMLs, but we submitted a request for such a notice to our Compliance Division Advisory Committee and will provide any responses we receive. Additionally, we believe you may modify a notice that complies with the Illinois Mortgage Escrow Account Act to reference Regulation Z’s HPML escrow cancellation requirements.

The Illinois Mortgage Escrow Account Act allows residential mortgage borrowers to terminate an escrow account when their loan has been paid down to 65% of the original principal balance, provided the loan is not in default. Lenders are required to provide notice of this option at two different times — at the loan’s closing, and when the mortgage is reduced to 65% of its original amount due to the borrower’s timely payments (if the borrower is not otherwise in default). 

However, since the Act does not dictate the specific form the notice must take, we believe you may modify your notice to reference Regulation Z’s requirements for canceling escrow accounts associated with HPMLs, which differ from the Act’s requirements. Specifically, Regulation Z requires lenders to maintain escrow accounts for HPMLs for at least the first five years after the loan consummation, after which time the borrower may request cancellation of the escrow account if two conditions are met — the unpaid principal balance is less than 80% of the original value of the mortgaged property, and the borrower is not delinquent or in default on the loan.

Since the federal HPML requirements in Regulation Z appear to be in conflict with the Illinois Mortgage Escrow Account Act, a borrower with an HPML may meet the requirements to cancel their escrow account under the Act, but not under Regulation Z. Consequently, we believe it may be appropriate to reference Regulation Z’s HPML escrow cancellation requirements in your Illinois Mortgage Escrow Account Act notice to avoid confusing your HPML borrowers.

For resources related to our guidance, please see:

• Illinois 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.”)

• Illinois Mortgage Escrow Account Act, 765 ILCS 910/11 (“Notice of the requirements of the Act shall be furnished in writing to the borrower at the date of closing.”)

• Regulation Z, 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.”)

• Regulation Z, 12 CFR 1026.35(b)(3)(ii) (“Notwithstanding paragraph (b)(3)(i) of this section, a creditor or servicer shall not cancel an escrow account pursuant to a consumer’s request described in paragraph (b)(3)(i)(B) of this section unless the following conditions are satisfied:

(A) The unpaid principal balance is less than 80 percent of the original value of the property securing the underlying debt obligation; and

(B) The consumer currently is not delinquent or in default on the underlying debt obligation.”)