Jumbo Mortgage Loans

A definitive regulation has been adopted by the Fed to enforce a Dodd Frank Act clause that changes the Fed's Truth to Lending Act to raise the APR used to ascertain whether a mortgage provider is obliged to set up a trust fund for real estate tax and initial customer insurances, "jumbo" mortgage loans.

According to the definitive regulation of 23 February amending Regulation Z, the fiduciary duty for first stage jumbo loans applies only if the annual percentage point APR of the loans is 2,5 points or more above the AAR. Jumbo loans are loans that exceed the credit line for Freddie Mac's purchases.

Freddie Mac's present primary commitment for a mortgage that can be purchased by Freddie Mac in 2011 is US$417,000 for a single-family home that is not situated in a declared high-cost area. The higher limit applies to mortgage loans backed by real estate with two to four dwelling unit. Non-jumbo APR is still 1.5 percent above the median prime-offer ratio for a similar deal.

The increase in the annual APR for jumbo loans removes the obligation to hold in trust loans with an APR above the current but below the new limit. Bondholders may, at their discretion, use the 1,5 point jumbo credit limit but are not obliged to do so.

This definitive arrangement applies to Guaranteed Loans for which the applicant will receive an Application on or after 1 April 2011. With regard to the definitive scheme of 23 February, the US Federal Reserve invited the general public comments on a proposal to amend Regulation Z in order to review the trust deposit agreement for certain higher-priced mortgages.

Adopting the Dodd -Frank Act, the proposed legislation would transpose a provision extending the duration of the maintenance of a compulsory trust deposit box for a higher-priced mortgage credit. US Federal Reserve's suggestion would extend the duration of the compulsory initial trust deposit periods, higher-priced mortgages from one to five years and, in certain cases, longer, e.g. if the credit is overdue or past due.

Mortgage loans with a higher price are housing loans guaranteed by the borrower's main home with an annual percentage rate of charge that exceed the mean key interest for a similar operation by 1.5 or more percent for first mortgage loans or by 3.5 or more percent for subordinated mortgage loans.

Disclosure that may explain how the trust works or the effect of not having a trust deposit should be at least three working days before a mortgage is taken out. It would also impose disclosure to the consumer at least three working days prior to the closure of a trust holding accounts.

Statements on the proposal are due within 60 working days following receipt of the information in the Federal Register, which is anticipated in the near future.