FRB Issues Final Rule on Escrow Accounts for Certain First-Lien Jumbo Mortgage Loans, Additional Proposed Escrow Account Rule

The Federal Reserve Board issued a final rule revising the escrow account requirements for certain first-lien jumbo mortgage loans, implementing provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act's amendments to the Truth in Lending Act.


The final rule is available at:

http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20110223b2.pdf



The final rule implements a provision of the Dodd-Frank Act that increases the annual percentage rate threshold used to determine whether a mortgage lender is required to establish an escrow account for property taxes and insurance for first-lien, jumbo mortgage loans.

As you may recall, in July 2008, the FRB issued final rules requiring creditors to establish escrow accounts for first-lien higher-priced mortgage loans. A first-lien mortgage is considered a higher-priced mortgage loan if its APR is 1.5 percentage points or more above the current average prime offer rate. Under the final rule being issued today, the escrow requirement will apply to first-lien jumbo loans only if the loan's APR is 2.5 percentage points or more above the average prime offer rate. The APR threshold for non-jumbo loans remains unchanged.

The final rule is effective for covered loans for which the creditor receives an application on or after April 1, 2011.

The FRB also requested public comment on a second proposed rule to implement certain provisions of the Dodd-Frank Act's amendments to TILA that would lengthen the minimum period for mandatory escrow accounts for first-lien, higher-priced mortgage loans from one to five years, and longer under certain circumstances such as when the loan is delinquent or in default.

The proposed rule is available at:

http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20110223b1.pdf

The proposal also would implement new disclosure requirements of the amendments. Disclosures would be required at least three business days before consummation of a mortgage loan to explain, as applicable, how the escrow account works or the effects of not having an escrow account if one is not being established. The proposed rule also would require consumers to receive disclosures three days before an escrow account is closed.

The proposed rule also would exempt certain loans from the statute’s escrow requirement. The primary exemption would apply to mortgage loans extended by creditors that operate predominantly in rural or underserved areas, originate a limited number of mortgage loans, and do not maintain escrow accounts for any mortgage loans they service.

The Board is soliciting comment on the proposed rule for 60 days after publication in the Federal Register, which is expected shortly.