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Federal Register / Vol. 86, No. 30 / Wednesday, February 17, 2021 / Rules and Regulations
General economic principles and the Bureaus expertise in consumer financial markets, together with the limited data that are available, provide insight into these benefits, costs, and impacts.
C. Baseline for Analysis In evaluating the potential benefits, costs, and impacts of the final rule, the Bureau takes as a baseline the existing regulations requiring the establishment of escrow accounts for certain HPMLs and the existing exemption from these regulations. The final rule will create a new exemption so that some entities that are currently subject to the regulations requiring the establishing of these escrow accounts will no longer be subject to those regulations. Therefore, the baseline for the analysis of the final rule is those entities remaining subject to those requirements. The Bureau received no comments regarding this choice of baseline for its section 1022b analysis.
The final rule should affect the market as described in part VII.D below as long as it is in effect. However, the costs, benefits, and impacts of any rule are difficult to predict far into the future.
Therefore, the analysis in part VII.D of the benefits, costs, and impacts of the final rule is most likely to be accurate for the first several years following implementation of the final rule.

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D. Benefits and Costs to Consumers and Covered Persons The Bureau has relied on a variety of data sources to analyze the potential benefits, costs, and impacts of the final rule. To estimate the number of mortgage lenders that may be impacted by the rule and the number of HPMLs originated by those lenders, the Bureau has analyzed the 2019 HMDA data.59
While the HMDA data have some shortcomings that are discussed in more detail below, they are the best source available to the Bureau to quantify the impact of the final rule. For some portions of the analysis, the requisite data are not available or are quite limited. As a result, portions of this analysis rely in part on general economic principles to provide a qualitative discussion of the benefits, costs, and impacts of the final rule.
For entities that currently exist, the final rule will have a direct effect 59 For information on the 2019 HMDA data, see Feng Liu et al., An Updated Review of the New and Revised Data Points in HMDA: Further Observations using the 2019 HMDA Data Aug.
2020, https files.consumerfinance.gov/f/
documents/cfpb_data-points_updated-reviewhmda_report.pdf. The section 1022b analysis of the proposal for this rule analyzed 2018 HMDA
data.

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mainly on those entities that are not currently exempt and will become exempt under the final rule. The Bureau estimates that in the 2019 HMDA data there are 154 insured depositories or insured credit unions with assets between $2 billion and $10 billion that originated at least one mortgage in a rural or underserved area and originated fewer than 1,000 mortgages secured by a first lien on a primary dwelling, and as a result are likely to be impacted by the final rule. Together, these institutions reported originating 120,904
mortgages in 2019. The Bureau estimates that less than 3,000 of these were HPMLs.60
Because of the amendment to the end date in proposed 1026.35b2iiiD1, it is possible that the final rule will also affect entities that established escrow accounts after May 1, 2016, but would otherwise already be exempt under existing regulations. These could be entities that voluntarily established escrow accounts after May 1, 2016, even though they were not required to, or entities that, together with certain affiliates, had more than $2 billion in total assets, adjusted for inflation, before 2016 but less than $2 billion, adjusted for inflation, afterwards. The Bureau does not possess the data to evaluate the number of such creditors but believes there to be very few of them.
The final rule could encourage entry into the HPML market, expanding the number of entities exempted. However, the limited number of existing insured depository institutions and insured credit unions who will be exempt under the final rule may be an indication that the total potential market for such institutions of this size engaging in mortgage lending of less than 1,000
loans per year is small. This could indicate that few such institutions would enter the market due to the final rule.61 Moreover, the volume of lending 60 Some of the 154 entities described above were exempt under the EGRRCPA from reporting many variables for their loans. Non-exempt entities originated 2,601 first-lien closed-end mortgages with APOR spreads above 150 basis points. Such mortgages below the conforming loan limit were HPMLs. Such mortgages above the conforming limit loan limit may not have been HPMLs if their APOR
spreads were less than 250 basis points. To derive an upper limit on the number of HPMLs originated, all such mortgages are included in the calculations.
The Bureau does not have data on the number of potential HPMLs originated by entities exempt under the EGRRCPA from reporting rate spread data. Assuming the ratio of HPMLs to first-lien mortgages is the same for these entities as it was for non-exempt entities yields an estimate of 347
HPMLs originated by exempt entities, for a total conservative estimate of 2,948 HPMLs in the sample.
61 For evidence that the original escrow requirement did not cause many lenders to exit the market, see Alexei Alexandrov & Xiaoling Ang,
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they could engage in while maintaining the exemption is limited. The impact of this final rule on such institutions that are not exempt and would remain not exempt, or that are already exempt, will likely be very small. The impact of this final rule on consumers with HPMLs from institutions that are not exempt and will remain not exempt, or that are already exempt, will also likely be very small. Therefore, the analysis in this part VII.D focuses on entities that will be affected by the final rule and consumers at those entities. Because few entities are likely to be affected by the final rule, and these entities originate a relatively small number of mortgages, the Bureau notes that the benefits, costs, and impacts of the final rule are likely to be small. However, in localized areas some newly exempt community banks and small credit unions may increase mortgage lending to consumers who may be underserved at present.
1. Benefits and Costs to Consumers For consumers with HPMLs originated by affected insured depository institutions and insured credit unions, the main effect of the final rule will be that those institutions will no longer be required to provide escrow accounts for HPMLs. As described in part VII.D above, the Bureau estimates that fewer than 3,000
HPMLs were originated in 2019 by institutions likely to be impacted by the rule. Institutions that will be affected by the final rule could choose to provide or not provide escrow accounts. If affected institutions decide not to provide escrow accounts, then consumers who would have escrow accounts under the baseline will instead not have escrow accounts. Affected consumers will experience both benefits and costs as a result of the final rule. These benefits and costs will vary across consumers.
The discussion of these benefits and costs below focuses on the effects of escrow accounts on monthly payments.
However, one commenter noted that, because creditors often require borrowers to make two upfront monthly payments of escrowed items when obtaining a loan, escrow accounts also increase the amount consumers must pay upfront to obtain a loan although these upfront payments can often themselves be financed. Therefore, many of the costs and benefits discussed in this part VII.D.1 should also be Regulations, Community Bank and Credit Union Exits, and Access to Mortgage Credit rev. Oct.
2018, https papers.ssrn.com/sol3/
papers.cfm?abstract_id=2462128. This provides suggestive evidence that a limited exemption from the escrow requirement will cause few lenders to enter the market.

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