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Fed Issues Final Rule on Escrow Account Changes for Jumbo Loans

The ""Federal Reserve Board"":http://www.federalreserve.gov/ on Wednesday issued a ""final rule"":http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20110223b2.pdf and proposed a ""second rule"":http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20110223b1.pdf to revise the escrow account requirements under Regulation Z, and requested public comment on the second rule.

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The revisions amend escrow account requirements for certain home mortgage loans.

The final rule implements a provision of the Dodd-Frank Act that increases the annual percentage rate (APR) 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.

Jumbo loans are loans exceeding the conforming loan-size limit for purchase by Freddie Mac, as specified by the legislation.

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In July 2008 the Board issued final rules that required creditors to establish escrow accounts for first-lien higher priced mortgage loans. A loan is considered higher priced if its APR is 1.5 percentage points or more above the current average prime offer rate.

Under the final rule issued Wednesday, the escrow account will only be required if the loan's APR is 2.5 percentage points or more above the average prime offer rate.

The final rule is effective for covered loans applied for on or after April 1, 2011.

The Board is also proposing a rule that would expand the minimum period for mandatory escrow accounts for these types of loans from one to five years, and longer under certain circumstances, such as when the loan is delinquent or in default. The proposed rule would provide an exemption from the escrow requirement for certain creditors that operate in ""rural or underserved"" counties, as authorized by the legislation.

Also included would be new disclosure requirements brought about by the Dodd-Frank Act.

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.

About Author: Joy Leopold

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