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CUNA Regulatory Comment Call

September 3, 2010

Proposed Revisions to Escrow Account Requirements for Jumbo Loans

EXECUTIVE SUMMARY

• The Federal Reserve Board (Fed) has issued a proposed rule to revise the escrow account requirements for “higher-priced,” first-lien “jumbo” mortgage loans. This would implement a provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) and would increase the annual percentage rate (APR) threshold used to determine whether an escrow account is required for property taxes and insurance for first-lien jumbo mortgages, which are defined as those exceeding the conforming loan size limit for purchase by Freddie Mac. (Although the Dodd-Frank Act refers to Freddie Mac, this would also appear to apply with regard to Fannie Mae, which uses the same threshold.)
• This proposal would revise the provisions of the 2008 final rules that require creditors to establish escrow accounts for all first-lien mortgages if the APR is 1.5 percentage points or more above the average prime offer rate (APOR) for a comparable transaction. Under the Dodd-Frank Act and this proposal, the escrow account requirement would apply to first-lien jumbo loans only if the loan APR is 2.5 percentage points or more above the applicable APOR, instead of 1.5 percentage points as originally required in the 2008 rules. The threshold for non-jumbo loans and subordinate-lien loans would not change. Click here for more information about the 2008final rules.
• The proposal would not change the APR threshold used to determine whether a first-lien jumbo loan is subject to the other protections for “higher-priced” loans that were included in the 2008 final rule. These include the requirements to determine the consumer’s ability to repay the loan and the verification requirements for income and assets.

Comments are due within 30 days after the proposal is published in the Federal Register, which should be within the next several days. Please submit your comments to CUNA by September 15, 2010. If commenting directly to the Fed, you must refer to Docket No. R-1392 and RIN No. AD 7100-AD54.

Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Senior Vice President and Deputy General Counsel Mary Dunn at mdunn@cuna.coop and to Senior Assistant General Counsel Jeff Bloch at jbloch@cuna.coop; or mail them to Mary and Jef f c/o CUNA’s Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, Suite 600, Washington, DC 20004-2601. You may also contact us at 800-356-9655, ext. 6732, if you would like a copy of the proposed rule. You may also access it here.

• This proposal would relieve lenders of compliance with the escrow requirements for first-lien jumbo loans that are between 1.5 and 2.5 percentage points above the applicable APOR. This relief will be expedited if the new threshold is effective immediately upon publication of the final rule. However, lenders may still require time to change their systems and procedures in light of the new threshold. Also, in some states the affected loans may become subject to state laws that prohibit mandatory escrow accounts and lenders may need time to make the system changes necessary to comply with state or local law. Therefore, what should be the appropriate implementation period for the final rule that implements these Dodd-Frank Act provisions? Should the final rule be effective immediately upon publication, which should be shortly after comments in response to this proposal are reviewed, and would this provide you with sufficient time to implement the changes to your systems and procedures? If not, what additional time would be appropriate?
  
  

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