The Federal Reserve Board (FRB) submitted a plan to redraft the escrow account requirements for higher-priced, first lien “jumbo” mortgage loans. It uses a provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and would increase the annual percentage rate (APR) threshold used to establish whether a mortgage lender is required to establish an escrow account for property taxes and insurance for first-lien jumbo mortgage loans. In the United States, a jumbo mortgage
is a mortgage loan in an amount above conventional conforming loan limits.
In July 2008, the Board issued final rules requiring creditors to establish escrow accounts for first-lien loans if a loan’s APR is 1.5 percentage points or more above the applicable prime offer rate. Under the Dodd-Frank Act, which amended the Truth-in-Lending Act (TILA), the escrow requirement will apply for jumbo loans only if the loan’s APR is 2.5 percentage points or more above the applicable prime offer rate. The APR threshold for non-jumbo loans stayed the same.
The Dodd-Frank Act incorporates into TILA the Board’s regulatory requirement for escrow accounts and revises the APR threshold, but the act also includes other provisions, including new disclosure requirements. This change would implement only the act’s modification to the APR threshold. Other provisions of the act concerning escrow accounts will be fulfilled in a separate rulemaking.
The proposed change would not affect the APR threshold used to determine whether a jumbo loan is subject to the other consumer protections that the Board adopted for higher-priced loans in 2008. Those protections include requirements for determining consumers’ repayment abilities and restrictions on pre-payment penalties.
The Board is soliciting comment on the proposed rule, including the appropriate implementation date, for 30 days after publication in the Federal Register.
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