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Thursday, August 10, 2017

Determining the Escrow Amount

QUESTION
As a mortgage servicer, we are always making decisions about how the payment amount for escrow account items are determined. So, for us, the question is this: how are payment amount items determined in escrow accounts? Also, how do we determine the escrow amount for new construction?

ANSWER
Determining the payment amount for an escrow account is a critical mortgage servicer function. A servicer must estimate the amount of the escrow account items to be disbursed. If the servicer knows the charge for an escrow item in the next escrow account computation year, the servicer must use that amount.

Furthermore, if a charge for an escrow item is unknown to the servicer, the servicer may base the estimate of the charge on the preceding year’s charge, or the preceding year’s charge as modified by an amount not exceeding the most recent year’s change in the national Consumer Price Index for all urban consumers, which is known as the CPI. [24 CFR § 3500.17(c)(7)]

In cases of unassessed new construction, the servicer may base the estimate of property taxes and assessments on the assessment of comparable residential property in the market area. [24 CFR § 3500.17(c)(7)]

With respect to determining the amounts that will be paid from the escrow account during the escrow account computation year, the servicer must use disbursement dates that will pay items in a timely manner, which is considered to be on or before the deadline to avoid a penalty. [24 CFR § 3500.17(k)(1)]

Jonathan Foxx
Managing Director
Lenders Compliance Group