Finally, some good news from the Federal Reserve Board (FRB). In today’s issue of the Federal Register (76 FR 11319), the FRB published a final rule establishing a higher APR threshold for “jumbo” first lien, higher-priced mortgage loans in regard to the escrow account requirements implemented by §226.35(b)(3) of Regulation Z. The final rule implements subsection (b) of section 129D of TILA (section 129D was enacted as section 1461 of the Dodd-Frank Wall Street Reform and Consumer Protection Act) by increasing the APR threshold used to determine whether a mortgage lender is required to establish an escrow account for property taxes and insurance for first lien, higher-priced “jumbo” mortgage loans. Jumbo loans are loans exceeding the conforming loan-size limit for purchase by Freddie Mac, as established and adjusted by the Federal Housing Finance Agency (FHFA). (See Freddie Mac Bulletin No. 2010-28 at:http://www.freddiemac.com/sell/guide/bulletins/pdf/bll1028.pdf.) As you already know, in July 2008, the FRB issued final rules requiring creditors to establish escrow accounts for closed-end, first-lien, higher-priced mortgage loans (See our memoranda of July 14, 2008, and February 16, 2009 at page 12). A first lien mortgage is considered a higher-priced mortgage loan if the APR is 1.5% or more above the current average prime offer rate. Under the final rule published by the FRB today, the escrow account requirement will apply to first lien jumbo loans only if the loan’s APR is 2.5% or more above the average prime offer rate. The APR threshold for non-jumbo first lien, higher-priced mortgage loans remains unchanged. As does the APR threshold for subordinate lien higher-priced mortgage loans.
