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April 1 deadline for higher-priced mortgage loans
WASHINGTON (3/17/10)--New escrow requirements related to recent Federal Reserve amendments to Regulation Z will become effective on April 1 for site-built homes and October 1 for manufactured homes. The amendments, which were issued in 2008, establish new protections for consumers from unfair or deceptive home mortgage lending and advertising practices and were issued under the authority provided by the Home Ownership Equity Protection Act (HOEPA). While the majority of the provisions of the final rule became effective in October 2009, portions of the rule were delayed until 2010. Specifically, portions addressing the escrow requirements under “higher priced mortgages” were delayed. The "higher-priced mortgage" subset was established by these rules, and, under the new requirements, lenders that offer so-called “higher priced” mortgages are required to consider the borrower's ability to repay the loan and to verify a borrower’s income and assets. The rules also impose limits on prepayment penalties and require escrow accounts for taxes and insurance, prohibit certain servicing practices, and prevent certain misleading and deceptive advertisements. Additionally, lenders are required to provide Truth in Lending Act (TILA) disclosures within three business days after a mortgage application was received and before fees are charged. These escrow provisions require lenders making higher-price mortgage loans that are secured by a first-lien to set up an escrow account for property taxes and homeowners insurance. However, this escrow requirement does not apply to subordinate lien loans or to cooperatives, as long as the association pays for property taxes and insurance. Escrow accounts are required for condominium property taxes, but not for insurance if it is paid by the association under a master policy.


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