New Respa mortgage escrow accounting procedures finally became a reality Oct. 26 when HUD unveiled the much-anticipated regulations, and the new rules, by the departments estimation, will compel lenders to begin refunding as much as $1.5 billion to their over-escrowed consumers. The rule, which was also published in the Federal Register Oct. 26, will require that lenders and servicers switch to the aggregate method, maintain no more than a two-month escrow account cushion and require servicers to provide borrowers with annual disclosure statements reflecting what accounting method the servicer used and what expected monthly escrow balances it will require (see Oct. 3 Mortgage Marketplace). The effective date for the rule is April 27, 1995, and servicers will have three years to switch to the aggregate method. There is no phase-in period for the disclosure statement, however, and servicers will need to provide borrowers with that information by the end of 1995. The Mortgage Bankers Association said it was pleased with the uniformity the new rule brings to the industry, but took issue with the refund estimations HUD projected. The $1.5 billion in reimbursements, the trade group said, was too high and those assumptions are based on flawed figures, specifically the departments Phase II escrow study completed in 1992. There will not be many immediate refunds and many [consumers] wont see any refunds for three years, said Warren Lasko, MBA executive vice president. Some two-thirds of all loans were refinanced over the past three years ... almost all the new loans have been refinanced using the new rules. Recent home buyers, and those who refinanced, have gotten the benefit of the new rules. While the MBA insists most new and refinanced mortgage loans are already using the aggregate accounting method, the group isn't certain about how many lenders are using it, making it difficult to back their claim. Still, a handful of lenders are known to have switched to the new method before HUD finalized the rule and some, like Countrywide Funding, did so by choice in anticipation of the rule. Others, such as PNC Mortgage Corp., Fleet Mortgage Corp. and GMAC Mortgage Corp., changed their policies as part of class-action suit settlement agreements. Those lenders make up a large portion of the mortgage lending community, lending a hint of credibility to MBAs claim. The refund estimate wasn't the only point in which the two disagreed. HUD also figured that future home buyers would save about $477 million a year in closing costs and that individual consumers may save as much as $250 at closing. But Lasko also disputed that claim, adding that while consumers would pay less at closing, HUDs estimation again seemed too high. Some mortgage industry analysts have questioned whether HUDs generous estimations HUD said it considers the estimations conservative may simply be political posturing by a Clinton administration desperate for good news before November congressional elections. FHA Commissioner Nicolas Retsinas, speaking at a press conference to announce the rule, said the timing was purely coincidental, a point which many analysts agree on since the rule-making process began 18 months ago. But the departments refund estimations, based primarily on 1990-91 data, might be somewhat skewed, said one mortgage industry analyst, allowing the administration to present consumers with a fat $1.5 billion refund just before Election Day. Lasko said he also noted the correlation, but wouldn't comment further.
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