Anonymous
Georgetown,#2Consumer Comment
Wed, June 18, 2008
Just want to provide some additional background regarding mortgage loan escrow requirements. I neither condemn or agree with your lender's practices, and offer no opinion as to whether they demonstrate good customer service, but chances are they are operating legally. However, they apparently mislead you relative to what VA requires. The Department of Veterans Affairs loan guarantee program DOES NOT require lenders to establish an escrow account. If a lender or loan servicer tells you this they are wrong. Following is a quote from Chapter 9, Section 11 of Pamphlet 26-7, Guaranty of Insurance of Loans to Veterans - GI Loan Programs: "VA does not require the lender to establish escrow accounts for the collection and payment of property taxes, hazard insurance premiums, and similar items. However, it is the lender's responsibility to ensure that these items are paid timely. A lender who chooses to escrow for taxes and insurance must comply with applicable laws, including the Real Estate Settlement Procedures Act (RESPA)." Here is a link to that section of the handbook at the VA website: http://www.warms.vba.va.gov/admin26/pamphlet/pam26_7/ch09.doc However, if a lender does not require an escrow account they will generally charge a slightly higher interest rate or an "escrow release fee." This reflects the fact that it is more costly for lenders to assure payment of taxes and insurance when there is no escrow account. In your situation, since the VA DOES NOT require the lender to hold an escrow account, and you can prove it by referring to the above information, you should ask the lender to drop your escrow account, if you wish to be responsible for payment of your own taxes and insurance. But keep in mind that they will probably not drop the escrow account because you probably agreed to the escrow account when you signed the paperwork on the loan. Finally, note that escrow account calculations are governed by the Real Estate Settlement Procedures Act and its associated regulation, known as Regulation X. The rules are relatively complex, and I cannot second-guess how your lender calculated the additional funds they are requiring, but it was probably legal. In addition to being allowed to collect deficiencies and shortages, the lender can also collect a cushion and generally can also increase the amount they collect by the current inflation rate. Following are a couple of quotes from the regulations that might help borrowers understand some of the requirements: "Charges during the life of the escrow account. Throughout the life of an escrow account, the servicer may charge the borrower a monthly sum equal to one-twelfth (1/12) of the total annual escrow payments which the servicer reasonably anticipates paying from the account. In addition, the servicer may add an amount to maintain a cushion no greater than one-sixth (1/6) of the estimated total annual payments from the account. However, if a servicer determines through an escrow account analysis that there is a shortage or deficiency, the servicer may require the borrower to pay additional deposits to make up the shortage or eliminate the deficiency... " [Regulation X Section 3500.17(c)(1)(ii)] "Servicer estimates of disbursement amounts. To conduct an escrow account analysis, the servicer shall estimate the amount of escrow account items to be disbursed. If the servicer knows the charge for an escrow item in the next computation year, then the servicer shall use that amount in estimating disbursement amounts. If the charge is unknown to the servicer, the servicer may base the estimate 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 (CPI, all items). In cases of unassessed new construction, the servicer may base an estimate on the assessment of comparable residential property in the market area." [Regulation X Section 3500.17(c)(7)] Probably more than anyone wants to know about this!