15 U.S.C. § 1639d — Escrow or impound accounts relating to certain consumer credit transactions

(a) In general. Unless (b), (c), (d), or (e) provides otherwise, when a consumer credit^* transaction is secured by a first lien on the consumer’s principal dwelling, the creditor^* must establish an escrow or impound account before closing. The account pays taxes, hazard insurance, and, when applicable, flood insurance, mortgage insurance, ground rents, and other required periodic property or loan payments or premiums. This does not apply to an open-end credit plan or a reverse mortgage. (b) When required. An impound, trust, or other account for property taxes, insurance premiums, or other property-related purposes may not be required as a condition of a real-property sale contract or a first deed of trust or mortgage on the consumer’s principal dwelling, except for an open-end plan or reverse mortgage, unless (1) Federal or State law requires it; (2) a State or Federal governmental lending or insurance agency makes, guarantees, or insures the loan; (3) the transaction has a first mortgage or lien on the principal dwelling and the original principal is (A) no more than the applicable maximum mortgage limit under the sixth sentence of section 1454(a)(2) of title 12, while the annual percentage rate is at least 1.5 percentage points above the average prime offer rate defined in section 1639c, or (B) above that limit, while the annual percentage rate is at least 2.5 percentage points above that average; or (4) a regulation requires it. (c) Exemptions. (1) In general. By regulation, the Bureau^* may exempt from (a) a creditor that (A) operates in a rural or underserved area, (B) with affiliates stays below a Bureau limit on annual mortgage originations, (C) keeps its mortgage originations in its portfolio, and (D) meets Bureau asset-size and other criteria consistent with this part. (2) Smaller institutions. By regulation, the Bureau must exempt from (a) a first-lien loan made by an insured depository institution or insured credit union if (A) it has no more than $10 billion in assets, (B) it and affiliates made no more than 1,000 first-lien loans on principal dwellings in the prior calendar year, and (C) the transaction meets the criteria in 12 C.F.R. sections 1026.35(b)(2)(iii)(A), 1026.35(b)(2)(iii)(D), and 1026.35(b)(2)(v), or successor rules. (d) Duration of mandatory account. An account established under (b) must remain for at least 5 years from closing unless and until (1) the borrower has enough equity that private mortgage insurance is no longer required; (2) the borrower is delinquent; (3) the borrower otherwise has not complied with the legal obligation, as established by rule; or (4) the mortgage creating the account ends. (e) Limited exemptions. An escrow account is not required for a loan secured by cooperative shares. Insurance premiums need not be escrowed for a dwelling or unit if ownership requires joining an association and the association must maintain a master policy insuring the dwellings or units. (f) Clarification for mortgages outside the statutory test. For mortgages not covered by (b), this section does not prevent an account for taxes, insurance, or other property purposes if (1) the loan parties mutually agree to its terms; (2) the lender or servicer chooses it under the contract with the borrower; or (3) it is required for flood-insurance payments under section 102(d) of the Flood Disaster Protection Act of 1973. (g) Administration^* of mandatory accounts. (1) In general. Unless this subchapter or Bureau regulations say otherwise, an account established under (b) must be in a federally insured depository institution or credit union. (2) Administration. Unless this section or its regulations say otherwise, the account must be administered under (A) the Real Estate Settlement Procedures Act of 1974 and its regulations, (B) the Flood Disaster Protection Act of 1973 and its regulations, and (C), when applicable, the law of the State where the securing real property is located. (3) Interest. If State or Federal law requires it, the creditor must pay the consumer interest on money held in the account in the way that law requires. (4) Coordination with RESPA penalties. An act or omission that violates the Real Estate Settlement Procedures Act or its regulations, and for which the person^* has paid a fine, civil penalty, or other damages, does not create another fine, penalty, or damages under this section unless it also directly violates this section. (h) Disclosures for mandatory accounts. For an account required under (b), the creditor must give the consumer a written notice at least 3 business days before closing, or within the period set by regulation, stating (1) that the account will be created at closing; (2) the amount needed at closing to fund it initially; (3) the estimated first-year taxes, hazard insurance (including flood insurance when applicable), and other required periodic payments or premiums, using as appropriate the taxable assessed value, including existing or planned improvements whether or not financed by the transaction, or replacement costs; (4) the estimated monthly amount to escrow for those items; (5) that if the consumer later ends the account, the consumer must pay all taxes, hazard insurance, applicable flood insurance, and other required payments or premiums unless a new account is created; and (6) other information the Bureau finds necessary to protect consumers. (i) Definitions. (1) “Flood insurance” means coverage under the national flood insurance program under the National Flood Insurance Act of 1968. (2) “Hazard insurance” has the meaning given to “hazard insurance,” “casualty insurance,” “homeowner’s insurance,” or a similar term by the law of the State where the securing real property is located. (3) “Insured credit union” has the meaning in section 1752 of title 12. (4) “Insured depository institution” has the meaning in section 1813 of title 12. (j) Notice for consumers who waive escrow services. (1) In general. If (A) no account for property taxes, insurance premiums, or other real-property purposes is created for the transaction, or (B) after an account is created the consumer chooses and gives written notice to the creditor or servicer to close it, as allowed by statute, regulation, or contract, the creditor or servicer must timely give a clear written disclosure explaining the consumer’s responsibilities and the consequences of having no account. (2) Disclosure requirements. The disclosure must include (A) applicable fees or costs for not creating the account or later closing it; (B) a clear, prominent statement that the consumer must personally and directly pay items not escrowed in addition to the mortgage payment, and that taxes, insurance, and related fees may be substantial; (C) a clear explanation of consequences of not paying those items, including possible creditor- or servicer-placed insurance and its potentially higher cost, including possible servicer commissions, or reduced coverage; and (D) other information the Bureau finds necessary to protect consumers.