CFPB's Escrow Interpretation Is Causing Confusion Amongst Servicers And Is Likely To Harm Consumers

In a surprising move to many, the Consumer Financial Protection Bureau (CFPB) recently put the mortgage servicing industry on notice that including certain options for repayment of a shortage in an escrow account statement may violate Regulation X. Specifically, the CFPB explained in its recent edition of the Supervisory Highlights report that one or more servicers violated Regulation X by including a lump sum repayment option - not a lump sum repayment requirement - in the escrow account statement when a borrower has a shortage that is greater than or equal to one month's escrow payment.

Many servicers that we have spoken with over the past few weeks have questioned the CFPB's legal interpretation of Regulation X in this context. Moreover, those same servicers have expressed concern that the CFPB's interpretation will result in borrower confusion and potentially remove a repayment option that many borrowers have long preferred. For the reasons discussed below,