The Federal Reserve Board should exercise constraint in requiring escrow accounts on certain loans, according to state banking regulators, because it could impair the ability of community banks to originate jumbo loans.
In a comment letter on a proposed Truth in Lending Act rule, the Conference of State Bank Supervisors notes the proposal requires escrows if the interest rate on a jumbo mortgage exceeds a certain threshold.
"While the proposed change is specifically required by the Dodd-Frank Act, CSBS believes the FRB should explore greater exemptions for institutions which originate and hold the credit risk."
CSBS president and chief executive Neil Milner goes on to say that portfolio lenders have a great incentive to ensure the borrower can repay the loan, including property taxes and insurance.
"This dynamic needs to be considered as the rules and standards are determined," Milner said.
