E20-501 The Federal Reserve Board recently amended TILA to provide a separate, higher rate threshold for determining whether a "jumbo" loan is subject to the same escrow requirements as non-jumbo Higher Priced Mortgage Loans (HPMLs). Effective April 1, 2011, if a jumbo loan's APR exceeds the average prime offer rate (APOR) by 2.5 or more percentage points on the date the interest rate is set, then TILA requires the establishment of an escrow account for the payment of property taxes and any creditor-required premium for mortgage-related insurance, prior to consummation. For jumbo loans with an APR which does not exceed the APOR by 2.5 percentage points or more, this escrow requirement will no longer apply. This new rule implements a TILA amendment contained in the Dodd-Frank Wall Street Reform and Consumer Protection Act.
For the purposes of implementing this special threshold, the new rule defines "jumbo loan" as a loan with an original principal balance exceeding the applicable Freddie Mac maximum principal obligation. In addition, the Board notes that any future FHFA adjustments to the general maximum principal obligation stated will be considered in determining whether a loan is a jumbo loan.
E22-315 The Board also clarified that use of this higher threshold of 2.5 or more percentage points is limited to determining only whether the HPML escrow requirements apply to a jumbo loan transaction. The TILA section governing HPMLs also prohibits creditors from making a HPML based on the value of the consumer's collateral without regard to the consumer repayment ability as of consummation, and restricts creditor's ability to charge prepayment penalties. The special threshold for jumbo loans does not apply when determining whether either the repayment ability or prepayment penalty protections apply. For those considerations, the APR threshold remains 1.5 or more percentage points higher than the APOR on the date the rate is set.
In this new rule, the Board also states that Creditors are permitted to elect to continue to use the 1.5 percentage point threshold for whether "jumbo" loans will be subject to the escrow requirement subject to applicable state or local laws.
E20-329 Mortgage lenders may obtain the index from the Federal Institutions Examination Council (FFIEC), which publishes the Average Prime Offer Rate (APOR) on behalf of the Federal Reserve Board. To determine whether or not the loan is considered a Higher-Priced Mortgage Loan, employees may go to the FFIEC website at and select Rate Spread Calculator from the Consumer Compliance menu on the homepage. This link can be directly accessed as follows: http://www.ffiec.gov/ratespread/newcalc.aspx
Disclaimer: The information presented in this article represents the opinion of the author and not that of AllRegs. This article is not meant to be nor should it be construed as advice of legal counsel. The applicability of the information contained herein will vary based on the nature of each lending institution's business, under what law it was created, and its loan products and procedures. Readers are strongly urged to consult with their legal counsel and/or contact local counsel as appropriate in the various states and jurisdictions to determine the applicability of the materials contained herein to the specific facts and circumstances of each organization's programs and products and to identify other law applicable to its business operations. The information contained herein was not reviewed or approved by counsel in the respective jurisdictions.
For the purposes of implementing this special threshold, the new rule defines "jumbo loan" as a loan with an original principal balance exceeding the applicable Freddie Mac maximum principal obligation. In addition, the Board notes that any future FHFA adjustments to the general maximum principal obligation stated will be considered in determining whether a loan is a jumbo loan.
E22-315 The Board also clarified that use of this higher threshold of 2.5 or more percentage points is limited to determining only whether the HPML escrow requirements apply to a jumbo loan transaction. The TILA section governing HPMLs also prohibits creditors from making a HPML based on the value of the consumer's collateral without regard to the consumer repayment ability as of consummation, and restricts creditor's ability to charge prepayment penalties. The special threshold for jumbo loans does not apply when determining whether either the repayment ability or prepayment penalty protections apply. For those considerations, the APR threshold remains 1.5 or more percentage points higher than the APOR on the date the rate is set.
In this new rule, the Board also states that Creditors are permitted to elect to continue to use the 1.5 percentage point threshold for whether "jumbo" loans will be subject to the escrow requirement subject to applicable state or local laws.
E20-329 Mortgage lenders may obtain the index from the Federal Institutions Examination Council (FFIEC), which publishes the Average Prime Offer Rate (APOR) on behalf of the Federal Reserve Board. To determine whether or not the loan is considered a Higher-Priced Mortgage Loan, employees may go to the FFIEC website at and select Rate Spread Calculator from the Consumer Compliance menu on the homepage. This link can be directly accessed as follows: http://www.ffiec.gov/ratespread/newcalc.aspx
Disclaimer: The information presented in this article represents the opinion of the author and not that of AllRegs. This article is not meant to be nor should it be construed as advice of legal counsel. The applicability of the information contained herein will vary based on the nature of each lending institution's business, under what law it was created, and its loan products and procedures. Readers are strongly urged to consult with their legal counsel and/or contact local counsel as appropriate in the various states and jurisdictions to determine the applicability of the materials contained herein to the specific facts and circumstances of each organization's programs and products and to identify other law applicable to its business operations. The information contained herein was not reviewed or approved by counsel in the respective jurisdictions.
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