Should Escrow Be Required for 1st-Time Buyers?

First-time homebuyers should be required to have escrow accounts on subprime loans, a top mortgage executive at Chase told a June 14 Federal Reserve Board hearing on abusive lending practices."Mandating it for first-time homebuyers is very important, because they generally don't understand how this stuff works," said Pablo Sanchez, national mortgage production executive at J.P. Morgan Chase. Otherwise, Mr. Sanchez and other lenders represented at the hearing urged the Fed to rely on guidance in encouraging escrows or to allow consumers to opt out. Consumer advocates, however, are urging the Fed to use its authority under the Home Ownership and Equity Protection Act to mandate escrows on subprime loans. Martin Eakes, chief executive of the Center for Responsible Lending, contends that a HOEPA regulation is needed to ensure that all lenders require escrows. "Guidance will not work," he warned.