Federal Reserve has Finalized Rule on Jumbo Loan Escrow Requirements

Friday, February 25th, 2011

Leon Williams

Federal Reserve has Finalized Rule on Jumbo Loan Escrow Requirements

The rule raises the threshold requirements for establishing an escrow account (property taxes ad insurance) on a first-lien jumbo mortgage.

The rule essentially says that if the APR on a first-lien jumbo loan is 2.5 percentaage points (previously 1.5 percentage points) or more above the average prime offer rate, an escrow account is required.

The provision was one of the reforms outlined in the Dodd-Frank Wall Street Reform and Consumer Protection Act, three years ago. Yes, three years to finally wade through that act to come up with this.

Other proposed rules are listed here:

A rule that effectively expands the period loan holders are required to maintain escrow accounts on first-lien jumbo mortgages. Currently the required escrow period for loan holders is 1 year. Under the new rule that would be extended to 5 years, and if that loan is delinquent or in default it would have to be maintained even longer. So even if you have paid your loan down to 80% you will still be required to maintain the escrow account. The funny part here is that if the loan is in default, typically people are not making payments and there is no money in the escrow account. Somebody probably did not think of that one. Creditors in rural areas would be given an exemption to this rule change.
Disclosures will have to made three days before the consumation of the mortgage explaiing how the escrow account will work and the effects that could result if they do not have an escrow account.

These additional proposed rules have not been finalized and the fed is currently excepting comments. The comment period will run 60 days from the date of publication in the Federal Register.

Wanting to sound like a broken record here (and proud of it), the results coming from this mess is a whole lot of legislation that will do nothing to fix what ails us. More legislation means more bureaucracy, which leads to more government waste, higher taxes and fees, and ultimately less for us to build wealth with. Yes it is an ugly cycle. The “War on Wealth” is hitting us from all sides, and it is relentless. It’s like musical chairs, the more that is taken away from you, the greater the likelihood you will be left without the chair to sit in.

Leon Williams
Luca Financial Services

http://leonsblog.leonwilliams.me

For other posts in our “War On Wealth Series” Check out the following links:

War On Wealth Series – A Primer (Introduction)

The Accidental Philanthropist; but Uncle Sam! How Many Times Can You Tax The Same @#$% dollar?

How Not To Turn $20 Into A $75,000 Disaster

Maximizing The “Bank Of You Concept”; Setting Up Your Own Private Bank

Life Insurance As An Estate Planning Tool

Private Retirement Plans Vs. Employer Sponsored Retirement Plan Options

Special Valuations For Intra-Family Transfers, Gift Taxes And Lifetime Transfers

Why You Should Start A Personal Business?

Advantages And Disadvantages Of Investing In Annuities