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Thursday, March 19, 2015

Escrow Cushion Limitations

Under RESPA, lenders are allowed to charge a cushion for maintaining an escrow account up to two months. Are there state laws that would be more restrictive? For example, are there states that will not allow any cushion at all or allow only up to one month cushion?

During the course of the loan, Section 10 of RESPA prohibits a lender from charging excessive amounts for the escrow account. Each month the lender may require a borrower to pay into the escrow account no more than 1/12 of the total of all disbursements payable during the year, plus an amount necessary to pay for any shortage in the account. In addition, the lender may require a cushion, not to exceed an amount equal to 1/6 of the total disbursements for the year. (The lender must perform an escrow account analysis once during the year and notify borrowers of any shortage. Any excess of $50 or more must be returned to the borrower.)

However, state law may impose more restrictive limits on the amount of cushion a lender may establish and maintain. As of today’s date, the chart below shows those states with express escrow cushion requirements:

Brennan Holland
Director/Legal & Regulatory Compliance
Lenders Compliance Group