The Federal Reserve Board has issued a final rule and requested public comment on a proposed rule under Regulation Z to revise the escrow account requirements for certain home mortgage loans. The revisions to the regulation, which implements the Truth in Lending Act, or TILA, are being made pursuant to the Dodd-Frank Act.

The final rule implements a provision of the Dodd-Frank Act that increases the annual percentage rate, or APR, threshold used to determine whether a mortgage lender is required to establish an escrow account for property taxes and insurance for first-lien, “jumbo” mortgage loans. Jumbo loans are loans exceeding the conforming loan-size limit for purchase by Freddie Mac, as specified by the legislation.

The Federal Reserve Board is also proposing a rule that would expand the minimum period for mandatory escrow accounts for first-lien, higher-priced mortgage 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.

The proposal also would implement new disclosure requirements contained in the Dodd-Frank Act. 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.

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