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Subtitle E—Mortgage Servicing 
SEC. 9401. ESCROW AND IMPOUND ACCOUNTS RELATING 
TO 
CERTAIN 
CONSUMER 
CREDIT 
TRANS-
ACTIONS. 
(a) IN GENERAL.—Chapter 2 of the Truth in Lend-
ing Act (15 U.S.C. 1631 et seq.) is amended by inserting 
after section 129C (as added by section 9101) the fol-
lowing new section: 
‘‘SEC. 129D. ESCROW OR IMPOUND ACCOUNTS RELATING 
TO 
CERTAIN 
CONSUMER 
CREDIT 
TRANS-
ACTIONS. 
‘‘(a) IN GENERAL.—Except as provided in subsection 
(b), (c), or (d) , a creditor, in connection with the forma-
tion or consummation of a consumer credit transaction se-
cured by a first lien on the principal dwelling of the con-
sumer, other than a consumer credit transaction under an 
open end credit plan or a reverse mortgage, shall establish, 
before the consummation of such transaction, an escrow 
or impound account for the payment of taxes and hazard 
insurance, and, if applicable, flood insurance, mortgage in-
surance, ground rents, and any other required periodic 
payments or premiums with respect to the property or the 
loan terms, as provided in, and in accordance with, this 
section. 
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‘‘(b) WHEN REQUIRED.—No impound, trust, or other 
type of account for the payment of property taxes, insur-
ance premiums, or other purposes relating to the property 
may be required as a condition of a real property sale con-
tract or a loan secured by a first deed of trust or mortgage 
on the principal dwelling of the consumer, other than a 
consumer credit transaction under an open end credit plan 
or a reverse mortgage, except when— 
‘‘(1) any such impound, trust, or other type of 
escrow or impound account for such purposes is re-
quired by Federal or State law; 
‘‘(2) a loan is made, guaranteed, or insured by 
a State or Federal governmental lending or insuring 
agency; 
‘‘(3) the transaction is secured by a first mort-
gage or lien on the consumer’s principal dwelling 
having an original principal obligation amount 
that— 
‘‘(A) does not exceed the amount of the 
maximum limitation on the original principal 
obligation of mortgage in effect for a residence 
of the applicable size, as of the date such inter-
est rate set, pursuant to the sixth sentence of 
section 305(a)(2) the Federal Home Loan 
Mortgage 
Corporation 
Act 
(12 
U.S.C. 
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1454(a)(2)), and the annual percentage rate 
will exceed the average prime offer rate for a 
comparable transaction by 1.5 or more percent-
age points; or 
‘‘(B) exceeds the amount of the maximum 
limitation on the original principal obligation of 
mortgage in effect for a residence of the appli-
cable size, as of the date such interest rate set, 
pursuant to the sixth sentence of section 
305(a)(2) the Federal Home Loan Mortgage 
Corporation Act (12 U.S.C. 1454(a)(2)), and 
the annual percentage rate will exceed the aver-
age prime offer rate for a comparable trans-
action by 2.5 or more percentage points; or 
‘‘(4) so required pursuant to regulation. 
‘‘(c) DURATION OF MANDATORY ESCROW OR IM-
POUND ACCOUNT.—An escrow or impound account estab-
lished pursuant to subsection (b), shall remain in existence 
for a minimum period of 5 years, beginning with the date 
of the consummation of the loan, and until such borrower 
has sufficient equity in the dwelling securing the consumer 
credit transaction so as to no longer be required to main-
tain private mortgage insurance, or such other period as 
may be provided in regulations to address situations such 
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as borrower delinquency, unless the underlying mortgage 
establishing the account is terminated. 
‘‘(d) LIMITED EXEMPTIONS FOR LOANS SECURED BY 
SHARES IN A COOPERATIVE AND FOR CERTAIN CONDO-
MINIUM UNITS.—Escrow accounts need not be established 
for loans secured by shares in a cooperative. Insurance 
premiums need not be included in escrow accounts for 
loans secured by condominium units, where the condo-
minium association has an obligation to the condominium 
unit owners to maintain a master policy insuring condo-
minium units. 
‘‘(e) CLARIFICATION
ON ESCROW ACCOUNTS
FOR 
LOANS NOT MEETING STATUTORY TEST.—For mort-
gages not covered by the requirements of subsection (b), 
no provision of this section shall be construed as pre-
cluding the establishment of an impound, trust, or other 
type of account for the payment of property taxes, insur-
ance premiums, or other purposes relating to the prop-
erty— 
‘‘(1) on terms mutually agreeable to the parties 
to the loan; 
‘‘(2) at the discretion of the lender or servicer, 
as provided by the contract between the lender or 
servicer and the borrower; or 
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‘‘(3) pursuant to the requirements for the 
escrowing of flood insurance payments for regulated 
lending institutions in section 102(d) of the Flood 
Disaster Protection Act of 1973. 
‘‘(f) ADMINISTRATION OF MANDATORY ESCROW OR 
IMPOUND ACCOUNTS.— 
‘‘(1) IN GENERAL.—Except as may otherwise 
be provided for in this title or in regulations pre-
scribed by the Board, escrow or impound accounts 
established pursuant to subsection (b) shall be estab-
lished in a federally insured depository institution. 
‘‘(2) ADMINISTRATION.—Except as provided in 
this section or regulations prescribed under this sec-
tion, an escrow or impound account subject to this 
section shall be administered in accordance with— 
‘‘(A) the Real Estate Settlement Proce-
dures Act of 1974 and regulations prescribed 
under such Act; 
‘‘(B) the Flood Disaster Protection Act of 
1973 and regulations prescribed under such 
Act; and 
‘‘(C) the law of the State, if applicable, 
where the real property securing the consumer 
credit transaction is located. 
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