TopMortgage Compliance Update (1)
 

           March 4, 2011   

                                      FRB: Publishes HPML "Jumbo" Final Rule

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On March 2, 2011, the FRB published its HOEPA Final Rule for "jumbo" loans, to comply with the Dodd-Frank Act. In July of 2008, the FRB adopted final rules (2008 HOEPA Final Rule).  

 

The 2008 HOEPA Final Rule defined a class of "higher-priced mortgage loans'' (HPMLs) and prohibited certain lending and servicing practices in connection with such transactions. Dodd-Frank substantially codifies the requirement in Regulation Z that escrow accounts for taxes and insurance be established for first-lien HPMLs, adopted by the FRB as part of the 2008 HOEPA Final Rule.


Among other things, the FRB prohibited extending an HPML secured by a first lien unless an escrow account is established before consummation for payment of property taxes and premiums for mortgage-related insurance required by the creditor.  

 

Under the 2008 HOEPA Final Rule, an HPML is a consumer credit transaction secured by the consumer's principal dwelling with an annual percentage rate (APR) that exceeds the average prime offer rate (APOR) for a comparable transaction, as of the date the transaction's interest rate is set, by 1.5 or more percentage points for loans secured by a first lien, or by 3.5 or more percentage points for loans secured by a subordinate lien.


On September 24, 2010, the FRB published a proposed rule in the Federal Register to implement TILA Section 129D(b)(3)(B), as enacted by Section 1461 of the Dodd-Frank Act. See 75 FR 58505 (September 2010 Escrow Proposal). The FRB proposed to raise the rate threshold for coverage by the escrow account requirement for first-lien HPML "jumbo'' mortgage loans.


Specifically, the FRB proposed to require escrows for "jumbo'' loans whose APR exceeds the APOR for a comparable transaction, as of the date the transaction's interest rate is set, by 2.5 or more percentage points.

 

Loans that are not eligible for purchase by Freddie Mac because their original principal obligation is too large are "jumbo" mortgages. The term "jumbo'' is used in this Final Rule to refer to such loans.

 

Our Library has a copy of the issuance. 

Outline
As discussed above, the 2008 HOEPA Final Rule imposed the escrow requirement on first-lien mortgage transactions having an APR that exceeds the average prime offer rate for a comparable transaction by 1.5 or more percentage points. Dodd-Frank incorporates this coverage test in new TILA Section 129D for loans that do not exceed the maximum original principal obligation for a mortgage to be eligible for purchase by Freddie Mac.
  • For loans with an original principal obligation that exceeds the applicable Freddie Mac maximum principal obligation, TILA Section 129D requires escrow accounts only if the APR exceeds the applicable average prime offer rate by 2.5 or more percentage points.
  • The current maximum principal obligation for a mortgage loan to be eligible for purchase in 2011 by Freddie Mac is $417,000 for a single-family property that is not located in a designated "high-cost'' area. (Higher limits apply for mortgage loans secured by a property with two to four residential units.)
Illustration
  • If the original principal obligation for a mortgage loan secured by a single-family property in a "high cost" area is $415,000, the determination of whether the loan is subject to the escrow requirement would be made using an APR threshold of 1.5 percentage points over the APOR.
  • By contrast, if the original principal obligation is $420,000, the determination would be made using a threshold of 2.5 percentage points over the APOR.    
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Truth in Lending, "Jumbo" Loans - Higher-Priced Mortgage Loans, Final Rule and Office Staff Commentary, Federal Register

March 2, 2011

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