Q: Regarding the “small lender” exemption for flood escrow provisions, what are the transition rules?
A: Institutions that initially qualify as a “small lender” should be aware of transition rules if they later grow to exceed the $1 billion asset-size threshold.
If a regulated lending institution qualified for the “small lender” exception in 2016, but had assets of $1 billion or more as of 12/31/16 and 12/31/17, such institution would be required to begin escrowing for any loans made, increased, extended, or renewed on or after July 1, 2018.
Similarly, an institution that no longer qualifies for the exception would provide the option-to-escrow for borrowers of loans outstanding on July 1 of the succeeding calendar year following the lender’s change in status. The applicable option-to-escrow notices shall be mailed by September 30 of that year.
The CFPB has clarified that under the rules, if assets decrease; it is possible for an institution to technically reclaim “small lender” status.