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Fed article covers Reg Z escrow provisions
WASHINGTON (3/31/10)--The Federal Reserve Board has amended Regulation Z, Truth in Lending, to require escrow accounts for all "higher-priced" first-lien mortgages that are secured by a consumer's principal dwelling, and the new escrow rules for these mortgages go into effect Thursday. 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). 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. Escrow accounts are required for condominium property taxes, but not for insurance if it is paid by the association under a master policy. (See related story: April 1 deadline for higher-priced mortgage loans) According to the Credit Union National Association, loans are classified as "higher-priced" if the annual percentage rate exceeds the average prime offer rate for a comparable transaction as of the date the interest rate is set by 1.5%. Last year, the Federal Reserve Bank of Philadelphia released an article entitled "Escrow Accounting Rules: Are You in Compliance?" The article, which may be helpful for credit unions, provides information on escrow accounting methods, preparing escrow disclosure statements, and ensuring that annual analyses result in correct balances. For the full article, use the resource link.
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