WASHINGTON - The Clinton administration is about to unveil regulations that would reduce the escrow charges mortgage servicers may collect from homeowners.
By setting clear standards, the Department of Housing and Urban Development would resolve the hot issue of overcharging, on which state officials, Congress, and consumer advocates have focused in recent years.
HUD will probably print the proposal in the Federal Register within two weeks and invite comment.
According to the draft, HUD will direct lenders to use the so-called aggregate accounting method, not the widely used single-item method, to determine how much consumers must pay into the accounts to cover tax and insurance payments. The aggregate method generally reduces the size of payments.
In addition, the proposed rule would require that each escrow account shrink to one-sixth of a year's payments at least once each year.
For new accounts, the rule would apply as soon as it is effective. But for existing accounts, mortgage bankers would have three years to move to the new standards.
The rule also would require clearer disclosure to consumers through annual statements.
Under pressure from class actions by several state attorneys-general and rumblings from Congress and HUD, many large lenders have already switched to the aggregate method.
For others, though, the new rule would have a "major impact," said Ralph S. Mozilo, executive vice president for underwriting and compliance at Countrywide Funding Corp.
Mortgage bankers use the large escrow accounts to get better terms on their warehouse lines, Mr. Mozilo explained. As those accounts shrink, mortgage bankers will have to pay more for the warehouse credit, and consumers will pay more for their mortgages, he said.
Countrywide switched to the aggregate accounting method three years ago, because "it seemed to be fairer to consumers," Mr. Mozilo said.
The switch also reflected changes in its funding practices. Instead of relying primarily on warehouse lines, it switched to using the commercial paper market, short-term loans, and its own funds.