Here’s what’s in the CFPB’s new FAQ on escrow rules
June 4, 2021 12:12 PM
For mortgage servicers, the escrow portion of the borrower's payment is a compliance hot button, exemplified by the recently wrapped up series of enforcement actions against Ocwen Financial over its escrow account practices.
Among the common questions is whether a consumer can choose to make up a shortfall at one time, rather than spread out in their next year's payments.
To deal with these various questions, the Consumer Financial Protection Bureau has updated its mortgage servicing frequently asked questions page on its website to cover the escrow process.
The FAQ articles do not add any new rules or guidance from the agency; they only clarify what is already in place. Below you’ll see what’s covered.
Among the common questions is whether a consumer can choose to make up a shortfall at one time, rather than spread out in their next year's payments.
To deal with these various questions, the Consumer Financial Protection Bureau has updated its
The FAQ articles do not add any new rules or guidance from the agency; they only clarify what is already in place. Below you’ll see what’s covered.
Deficiencies, shortages and surplus
This section defines that a negative balance in the escrow account is a deficiency, that a shortage is the amount the account would be short of its target following the annual analysis and a surplus represents how much the current balance exceeds the target.
The FAQ specifies how a lender is able to cure (or at its discretion not cure) a shortage. It makes it clear that the rules on curing the shortage are specified in federal regulations and that a servicer cannot include in the annual escrow statement any options for repayment of shortages that are not included in the governing regulation, such giving the borrower a lump sum payment option that is equal to or more than one month's escrow payment.
The FAQ specifies how a lender is able to cure (or at its discretion not cure) a shortage. It makes it clear that the rules on curing the shortage are specified in federal regulations and that a servicer cannot include in the annual escrow statement any options for repayment of shortages that are not included in the governing regulation, such giving the borrower a lump sum payment option that is equal to or more than one month's escrow payment.
Lump sum payments to cure a shortage
The FAQ clarifies that if the shortage is equal to or larger than the borrower's normal monthly payment into escrow, it can be cured by a single, unsolicited lump sum. It further states that since the Real Estate Settlement Procedures Act does not govern whether or not a borrower can make an unsolicited payment, it would not be considered a violation of the applicable regulation.
"However, the servicer cannot require or provide the option of a lump sum payment on the annual escrow account statement," the FAQ declared. "The annual escrow statement, which reflects the escrow account analysis, may indicate that a shortage can exist or that the borrower can repay the shortage in equal monthly payments over at least a 12-month period."
"However, the servicer cannot require or provide the option of a lump sum payment on the annual escrow account statement," the FAQ declared. "The annual escrow statement, which reflects the escrow account analysis, may indicate that a shortage can exist or that the borrower can repay the shortage in equal monthly payments over at least a 12-month period."
What servicers can't say but can do
Because RESPA Regulation X does not specifically mention the lump sum as a repayment option, the servicer cannot include that in the annual escrow statement.
"Regulation X does not, however, prohibit a servicer from including other statements or materials in the same envelope as the annual escrow statement or in an entirely separate communication that provides general information regarding the operation of a borrower's escrow account or additional guidance on ways in which a borrower may manage or make voluntary payments into their escrow account," the FAQ pointed out.
The same rules around curing a shortage also apply to servicers looking to have a borrower bring the account out of a negative balance by making payments.
"Regulation X does not, however, prohibit a servicer from including other statements or materials in the same envelope as the annual escrow statement or in an entirely separate communication that provides general information regarding the operation of a borrower's escrow account or additional guidance on ways in which a borrower may manage or make voluntary payments into their escrow account," the FAQ pointed out.
The same rules around curing a shortage also apply to servicers looking to have a borrower bring the account out of a negative balance by making payments.
Doing another escrow analysis
Servicers can do a new escrow account analysis during the normal annual cycle if they determine the items being paid through the account will cause the balance to decrease or increase beyond what the original analysis anticipated.
With the new analysis, the servicer must provide a short year escrow account statement, which resets the computation year and lets the consumer know what actions will be taken to address the surplus, shortage, or deficiency.
With the new analysis, the servicer must provide a short year escrow account statement, which resets the computation year and lets the consumer know what actions will be taken to address the surplus, shortage, or deficiency.
Other questions and answers regarding escrow
The first section of the FAQ gives definitions regarding what constitutes an escrow account; when the annual statement should be sent; what charges can the servicer require the borrower to pay into the account; and what defines the disbursement date for those payments.
Another bullet point provides definitions for the annual escrow account analysis. The final sections discuss what escrow public guidance documents are and where they can be found on the CFPB website. "Public guidance documents are not 'rules, regulations, or interpretations' of the Bureau for purposes of RESPA," the FAQ said.
Another bullet point provides definitions for the annual escrow account analysis. The final sections discuss what escrow public guidance documents are and where they can be found on the CFPB website. "Public guidance documents are not 'rules, regulations, or interpretations' of the Bureau for purposes of RESPA," the FAQ said.
