Capital Briefs: HUD Would Limit Lenders' Escrow Changes

A Department of Housing and Urban Development proposal would prevent sudden increases to mortgage payments by restricting lenders' ability to change escrow account procedures.

Under the proposed rules, lenders and mortgage servicers would be prohibited from changing monthly property tax disbursements to annual payments without a borrower's consent. Because mortgage payments are increased to cover escrow shortfalls, switching to a lump sum annual payment could drain the account.

Also, for expected escrow shortfalls that force mortgage payments to rise 50% or more, HUD proposed letting borrowers phase-in increases over two years. Comments are due Nov. 4 on the plan, which was published in the Sept. 3 Federal Register.

Senate Banking Committee Chairman Alfonse M. D'Amato praised HUD for seeking the rule changes. "It's wrong for homeowners to be stuck with unnecessary mortgage-escrow hikes from lenders who are often more concerned with short-term profit," he said.