New proposed and final ruling on Escrow disclosure for jumbo mortgages

New proposed and final ruling on Escrow disclosure for jumbo mortgages

New regulations for the Regulation Z disclosure has been proposed to change the disclosure and requirement for certain types of loans. Creditors were required to establish an escrow account, which the lender impounds for payment of property taxes and home owners insurance if the Annual percentage rate is 1.5 percent higher than the average current prime rate. The new requirement to establish an escrow account will now be 2.5 percentage points or more above the average prime offer rate. This rule will go into effect for loans applied for on or after April 1, 2011.

The Federal Reserve Board is also proposing a new rule that would expand the minimum period for mandatory escrow accounts for these types of loans. It would go from one to five years and longer under certain circumstances for instance if the mortgage loan goes delinquent. This new proposed rule would be exempt for certain creditors that operate in rural or underserved countries.

The Board is also proposing a rule that would expand the minimum period for mandatory escrow accounts for these types of loans from one to five years, and longer under certain circumstances, such as when the loan is delinquent or in default. The proposed rule would provide an exemption from the escrow requirement for certain creditors that operate in "rural or underserved" counties, as authorized by the legislation.

Disclosures would be required at least three business days before consummation of a mortgage loan to explain, as applicable, how the escrow account works or the effects of not having an escrow account if one is not being established. The proposed rule also would require consumers to receive disclosures three days before an escrow account is closed.

Also included would be new disclosure requirements brought about by the Dodd-Frank Act. Full disclosure would be required at least 3 business days before consummation of a mortgage loan. This disclosure would have to explain how the escrow account works or the effects of not having an escrow account. This proposed rule would also require consumers to receive full disclosure 3 days prior to an escrow account being closed.

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