If your loan originated with an escrow account, you may be required to maintain the escrow account for the life of the loan. There may also be other reasons you would be required to maintain an escrow account.
If you would like to request to open or close an escrow account, please send a written request to us at the Requests for Assistance address. Include your current tax and/or insurance bills for a faster resolution when requesting to open an escrow account.
Note: At this time, we do not escrow homeowners association or co-op dues.
A deficiency exists when the escrow account balance is negative, which typically occurs when a mortgage servicer advances funds to make a tax or insurance payment when there are insufficient funds in the escrow account to cover the payment.
The Real Estate Settlement Procedures Act (RESPA) allows mortgage servicers to collect up to two months (or one-sixth) of the projected disbursements unless prohibited by state law. The cushion helps to cover any potential increases in your tax and/or insurance disbursements.
Typically, we analyze the required escrow balance once a year and compare it to the projected actual escrow balance. A surplus exists when the projected balance is more than the amount necessary to make any anticipated tax and/or insurance payments over the projected period.A surplus may be due to a variety of reasons, including but not limited to:
If your loan is current when an analysis is performed, any analyzed surplus amount will be sent to you within 30 days, subject to state-specific requirements.
For more information on how an escrow surplus is calculated, please see the Escrow Example section below.
Typically, we analyze the required escrow balance once each year and compare it to the projected actual escrow balance. A shortage exists when the projected balance is less than the amount necessary to make any tax and/or insurance payments over the projected period.A shortage may be due to a variety of reasons, including but not limited to:
If there is a shortage in the escrow account, that amount will be divided over a minimum 12-month period and added to the escrow payment. It may be possible to have the shortage extended over a longer period of time to reduce the monthly escrow payment if the payment is causing a hardship.
For more information on how an escrow shortage is calculated, please see the Escrow Example section below.
The amount collected for the escrow payment is equal to one-twelfth of the total disbursements we anticipate paying on your behalf from your escrow account during the next 12 months (base payment), including any applicable cushion, plus any adjustments for a shortage or deficiency. An example escrow payment calculation follows.
For this example, the projected tax and insurance payments over the next 12 months (based on the prior year’s disbursements) total $2,040. This amount is divided by 12 to produce the base payment (minimum monthly escrow payment) of $170. The chart below shows how the monthly escrow payments are used to make the tax and insurance payments.
This chart also shows that, with the starting balance of $0 and the base payment collected each month, the account has a DEFICIENCY (negative balance) in May, June, and July following the tax disbursement, and again in November following the insurance disbursement. The low balance for the year is -$350, which occurs after the tax disbursement.
The CUSHION is the target low balance for the account, as it is the amount allowed under RESPA to maintain for disbursement increases; the cushion for this example is the federal allowance of $340 (1/6 of anticipated yearly disbursements). This cushion (target low balance) can be achieved by starting the year with a balance of $690 (required beginning balance), as shown below; this chart represents a balanced account.
Once the required beginning balance is determined, it is compared to the projected actual balance for the effective date of the analysis (January in this example); if the two balances are not equal, the difference between them is either the surplus or the shortage, depending on which balance is greater.
SURPLUS: Using the same analysis, where the anticipated yearly disbursements are $2,040, the base payment (1/12 of yearly disbursements) is $170, the cushion (target low balance; 1/6 of yearly disbursements) is $340, and the beginning balance required to maintain that cushion is $690, the chart below shows a surplus based on a projected beginning balance on $720, with the surplus issued as a refund in order to balance the account.
SHORTAGE: Using the same analysis, where the anticipated yearly disbursements are $2,040, the base payment (1/12 of yearly disbursements) is $170, the cushion (target low balance; 1/6 of yearly disbursements) is $340, and the beginning balance required to maintain that cushion is $690, the chart below shows a shortage based on a projected beginning balance on $570, which is $120 less than the required amount. That difference (shortage) was spread over 12 months in this case and added to the base payments ($120/12=$10+$170=$180).