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
