WASHINGTON (MNI) – The following is the text of a statement from
the Federal Reserve Wednesday:

The Federal Reserve Board on Wednesday issued a final rule and
requested public comment on a second 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
(TILA), are being made pursuant to the Dodd-Frank Wall Street Reform and
Consumer Protection Act.

The final rule implements a provision of the Dodd-Frank Act that
increases the annual percentage rate (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.

In July 2008, the Board issued final rules requiring creditors to
establish escrow accounts for first-lien higher-priced mortgage loans. A
first-lien mortgage is considered a higher-priced mortgage loan if its
APR is 1.5 percentage points or more above the current average prime
offer rate. Under the final rule being issued today, the escrow
requirement will apply to first-lien jumbo loans only if the loan’s APR
is 2.5 percentage points or more above the average prime offer rate. The
APR threshold for non-jumbo loans remains unchanged. The final rule is
effective for covered loans for which the creditor receives an
application on or after April 1, 2011.

The 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. The Board is soliciting comment on the
proposed rule for 60 days after publication in the Federal Register,
which is expected shortly.

The Board’s notices for the final rule and the proposed rule are
attached.

** Market News International Washington Bureau: 202-371-2121 **

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