SENATE BILL REPORT

SB 6417

BYSenator McCaslin

Requiring the payment of interest on reserve accounts on residential real estate loans.

Senate Committee on Financial Institutions & Insurance

Senate Hearing Date(s):February 2, 1988

Senate Staff:Benson Porter (786-7470)

AS OF JANUARY 29, 1988

BACKGROUND:

Interest is not required to be paid by the lender to the borrower on reserve accounts established for residential loan agreements.  Reserve accounts are typically established so that a borrower prepays, pledges, or otherwise commits cash in advance of the payments for insurance premiums, property taxes, and similar expenses.  Funds deposited in these accounts can be held there for as long as nine months to a year.  It has been suggested that the borrower should receive interest payments on these reserve accounts.

SUMMARY:

A lender is required to make quarterly interest payments on a reserve account and to deposit these payments into the reserve account.  The interest rate shall be at least as great as the residential loan's interest rate for which the reserve account is established.

This provision does not apply to residential loan agreements for which the federal law or regulation prohibits the payment of interest on deposits under the lender's reserve account.

Appropriation:    none

Revenue:    none

Fiscal Note:      none requested

Effective Date:January 1, 1989