[Federal Register Volume 60, Number 89 (Tuesday, May 9, 1995)]
[Rules and Regulations]
[Pages 24734-24741]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-11313]
[[Page 24733]]
_______________________________________________________________________
Part VII
Department of Housing and Urban Development
_______________________________________________________________________
24 CFR Part 3500
Real Estate Settlement Procedures Act (Regulation X); Escrow Accounting
Procedures: Correcting Amendment and Clarifications; Final Rule
Federal Register / Vol. 60, No. 89 / Tuesday, May 9, 1995 / Rules and
Regulations
[[Page 24734]]
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Office of the Assistant Secretary for Housing-Federal Housing
Commissioner
24 CFR Part 3500
[Docket No. R-95-1688; FR-3255-F-08]
RIN 2502-AF77
Real Estate Settlement Procedures Act (Regulation X); Escrow
Accounting Procedures: Correcting Amendment and Clarifications
AGENCY: Office of the Assistant Secretary for Housing-Federal Housing
Commissioner, HUD.
ACTION: Correcting amendment and clarifications of final rule.
-----------------------------------------------------------------------
SUMMARY: On October 26, 1994, HUD published a final rule establishing
escrow accounting procedures under Sections 6(g) and 10 of the Real
Estate Settlement Procedures Act. The final rule was modified on
February 15, 1995, and the effective date was changed to May 24, 1995.
Today's issuance corrects references in Sec. 3500.8(c)(1) and in
Appendix A regarding responsibilities of servicers and settlement
agents. This issuance also explains a reference in the commentary of
the February 15 modification to a borrower's discretionary payments,
such as credit life insurance, in relation to escrow accounts. Several
appendices have been revised to illustrate how payments for credit life
insurance and similar discretionary payments should be referenced. In
addition, the issuance clarifies certain situations involving
installment payments and discounts or penalties.
EFFECTIVE DATE: May 24, 1995.
FOR FURTHER INFORMATION CONTACT: William Reid, Research Economist,
Office of Policy Development and Research, Room 8212, phone (202) 708-
0421); the TDD number is (202) 708-4594. For legal questions, contact:
Grant E. Mitchell, Senior Attorney for RESPA, Room 9262, phone (202)
708-1552, or Kenneth A. Markison, Assistant General Counsel for
Government-Sponsored Enterprises/RESPA, Room 9262, phone (202) 708-
3137. (The telephone numbers are not toll-free.) The address for all of
the above persons is: Department of Housing and Urban Development, 451
Seventh Street, SW, Washington, DC 20410-0500.
SUPPLEMENTARY INFORMATION: On October 26, 1994 (59 FR 53890), HUD
published a final rule establishing, in 24 CFR 3500.17, escrow
accounting procedures under Sections 6(g) and 10 of the Real Estate
Settlement Procedures Act (12 U.S.C. 2605(g) and 2609) (RESPA). The
final rule was modified on February 15, 1995 (60 FR 8812), and is
effective on May 24, 1995. Other corrections were published on December
19, 1994 (59 FR 65442), and March 1, 1995 (60 FR 11194), and a notice
of software availability was published on April 4, 1995 (60 FR 16985).
This technical correction amends Sec. 3500.8 and the related line
item instructions of Appendix A of 24 CFR part 3500, regarding
responsibilities of servicers and settlement agents in the computation
of aggregate adjustments. This correction clarifies that the lender or
servicer will normally provide instructions to the settlement agent for
closing.
Second, the February 15, 1995, issuance contained a commentary that
included a reference to credit life insurance (see 60 FR at 8813, first
column), as follows:
(d) [Page 53902, Sec. 3500.17(b), Definitions, ``Escrow account
item''.] Are certain payments that may enter and leave the account
within the same month, such as FHA monthly premiums, private
mortgage insurance, or credit life insurance, considered to be
escrow account items?
Answer: Yes. All items in the account are included so that the
projected low monthly balance is zero (-0-) at the end of Step 2 in
the Appendix I examples.* * *
The Department received a number of comments regarding the
inclusion of the term ``credit life insurance'' in a description of
items that might enter and leave the account in the same month, and
questions about whether this reference meant that any discretionary
payment by a borrower was subject to all of the provisions of the
escrow accounting rule. In response to those inquiries, the Department
is clarifying that there are only two circumstances in which credit
life insurance or similar payments would be considered to be ``in the
escrow account'': (1) when the payment is for insurance required by the
lender as a condition of the loan (and therefore is within the
definition of ``settlement service'' in Sec. 3500.2); or (2) when the
servicer chooses to place the discretionary payment into the escrow
account and pays the item from such account. In any other circumstance
the borrower's discretionary payment is not considered to be an escrow
account item.
In reviewing this matter, the Department has also concluded that if
the discretionary payments were not notated, the statement histories
would be confusing for borrowers who normally pay their principal,
interest, escrow, and discretionary payments with a single check or
wire transfer. Therefore, where discretionary payments are received,
the Department has developed language to be added to the initial and
annual account statements. This language is being added by this
issuance in a new Sec. 3500.17(o).
In addition, the Department received a number of questions
regarding circumstances in which the payee offered an option of either
installment payments or a one-time payment with a discount. The
preamble to the October 26, 1994, and February 15, 1995, rules
indicated that when a choice was available, servicers should make
disbursements on an installment basis, rather than an annual basis;
however, servicers were permitted (but not required) to make
disbursements on an annual basis if a discount were available. Once the
choice of payment basis is made, the disbursement date chosen for that
basis depends on discount and penalty dates. Section 3500.17(k) states
that ``[i]n calculating the disbursement date, the servicer shall use a
date on or before the earlier of the deadline to take advantage of
discounts, if available, or the deadline to avoid a penalty.'' This
provision is consistent with the rule, which is designed to avoid
excessive upfront payments and balances in escrow accounts and,
therefore, favors installment payments, unless there are penalties or
discounts that make annual payments advantageous for the consumer.
Also, after settlement a servicer and borrower are not prevented by
this rule from mutually agreeing, on an individual case basis, to a
different payment basis (installment or annual) or disbursement date.
List of Subjects in 24 CFR Part 3500
Consumer protection, Condominiums, Housing, Mortgages, Mortgage
servicing, Reporting and recordkeeping requirements.
Accordingly, 24 CFR part 3500 is corrected by making the following
correcting amendments:
PART 3500--REAL ESTATE SETTLEMENT PROCEDURES ACT
1. The authority citation for part 3500 continues to read as
follows:
Authority: 12 U.S.C. 2601 et seq., 42 U.S.C. 3535(d).
2. Section 3500.8 is amended by revising paragraph (c)(1), to read
as follows: [[Page 24735]]
Sec. 3500.8 Use of HUD-1 or HUD-1A settlement statements.
* * * * *
(c) * * *
(1) After itemizing individual deposits in the 1000 series using
single-item accounting, the servicer shall make an adjustment based on
aggregate accounting. This adjustment equals the difference in the
deposit required under aggregate accounting and the sum of the deposits
required under single-item accounting. The computation steps for both
accounting methods are set out in Sec. 3500.17(d). The adjustment will
always be a negative number or zero (-0-). The settlement agent shall
enter the aggregate adjustment amount on a final line in the 1000
series of the HUD-1 or HUD-1A statement.
* * * * *
3. Section 3500.17 is amended by adding paragraph (o), to read as
follows:
Sec. 3500.17 Escrow accounts.
* * * * *
(o) Discretionary payments. Any borrower's discretionary payment
(such as credit life or disability insurance) made as part of a monthly
mortgage payment is to be noted on the initial and annual statements.
If a discretionary payment is established or terminated during the
escrow account computation year, this change should be noted on the
next annual statement. A discretionary payment is not part of the
escrow account unless the payment is required by the lender, in
accordance with the definition of ``settlement service'' in
Sec. 3500.2, or the servicer chooses to place the discretionary payment
in the escrow account. If a servicer has not established an escrow
account for a federally related mortgage loan and only receives
payments for discretionary items, this section is not applicable.
4. In Appendix A to part 3500, the second paragraph for lines 1000-
1008 under the head ``Line Item Instructions'' is revised, to read as
follows:
Appendix A to Part 3500--Instructions for Completing HUD-1 and HUD-1A
Settlement Statements
* * * * *
Line Item Instructions
* * * * *
Lines 1000-1008. * * *
After itemizing individual deposits in the 1000 series using
single-item accounting, the servicer shall make an adjustment based
on aggregate accounting. This adjustment equals the difference
between the deposit required under aggregate accounting and the sum
of the deposits required under single-item accounting. The
computation steps for both accounting methods are set out in
Sec. 3500.17(d). The adjustment will always be a negative number or
zero (-0-). The settlement agent shall enter the aggregate
adjustment amount on a final line in the 1000 series of the HUD-1 or
HUD-1A statement.
5. Appendix G-2, ``Initial Escrow Account Disclosure Statement--
Example,'' is amended by substituting the phrase ``WILL BE'' for the
word ``WAS'' in the last sentence, and Appendices G-1, I-1, I-2, I-5,
and I-6 are revised, to read as follows:
BILLING CODE 4210-27-P
[[Page 24736]]
[GRAPHIC][TIFF OMITTED]TR09MY95.013
[[Page 24737]]
[GRAPHIC][TIFF OMITTED]TR09MY95.014
[[Page 24738]]
[GRAPHIC][TIFF OMITTED]TR09MY95.015
[[Page 24739]]
[GRAPHIC][TIFF OMITTED]TR09MY95.016
[[Page 24740]]
[GRAPHIC][TIFF OMITTED]TR09MY95.017
BILLING CODE 4210-27-C [[Page 24741]]
Dated: May 2, 1995.
Nicolas P. Retsinas,
Assistant Secretary for Housing-Federal Housing Commissioner.
[FR Doc. 95-11313 Filed 5-8-95; 8:45 am]
BILLING CODE 4210-27-P