Fed finalizes rule on jumbo loan escrow requirements
The Federal Reserve finalized a rule that will raise the threshold requirements for when a first-lien jumbo mortgage is required to establish an escrow account to hold property taxes and insurance. The provision, first proposed three years ago, is one of the reforms outlined in the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Fed said escrow accounts will be required when borrowers take out first-lien jumbo loans that have an APR that is 2.5 percentage points or more above the average prime offer rate. The previous threshold was 1.5 percentage points. The central bank also proposed a rule that would expand the period in which loan holders are required to maintain escrow accounts on first-lien jumbo mortgages. It would extend the required escrow period from one to five years and make it even longer when a loan is delinquent or in default. An exemption would be allotted to creditors in rural or underserved areas. New disclosure requirements also were proposed. Now disclosures will have to be made three days before consummating a mortgage to explain how the escrow account will work and any possible effects that could result from not having an account. The Fed is now accepting comments on that proposed rule. The commentary period will run for 60 days after the rule's publication in the Federal Register. Write to Kerri Panchuk.