Topic: Escrow Accounts
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We understand that under Regulation X, if an escrow account shortage is equal to or more than one month’s escrow payment, the servicer may either allow the shortage to exist or require the borrower to repay in equal installments over a 12-month period. Our escrow account statements also provide the option to pay the shortage in full without requiring it, but the regulations clearly state that the servicer cannot require or provide the option of a lump sum payment. Our core provider plans to remove the option and verbiage stating that the full shortage can be paid in full as a lump sum, but only after most of our accounts analyze for 2022. Will this be a compliance issue?
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Yes, we believe that Regulation X prohibits you from providing borrowers the option of paying an escrow account shortage greater than or equal to one month’s escrow account payment with a lump sum payment. Regulation X provides that if an escrow account analysis discloses a shortage that is greater than or equal to one month’s…
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Are we required to mail a property tax bill to our mortgage customers for their records when we pay real estate taxes out of escrow?
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The Illinois Property Tax Code requires mortgage lenders to send a copy of the tax bill to the borrower within fifteen days of receiving the bill from the tax collector. However, this requirement applies only when the tax bill is mailed to or in care of the mortgage lender’s address. Additionally, note that if the…
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We are a national bank that is going to begin offering escrow accounts to mortgage loan customers. We are aware we will need to provide several documents in conjunction with these accounts, including an initial escrow account statement, annual escrow account statement, escrow closing notice, Illinois Mortgage Escrow Account Act notice, Illinois notice of right to terminate escrow, Illinois notice of tax payments, Illinois escrow account disclosure agreement, and Illinois escrow account election form. Are there any other federal or state documents we may be overlooking, and can you direct us to any model forms (other than the escrow closing notice, which we have)?
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While we cannot provide an exhaustive list of every document you might need in relation to offering your customers escrow accounts, as your needs may vary depending on the circumstances of each loan, we believe the federal documents you listed generally would meet federal requirements related to providing escrow accounts, with the caveats noted below.…
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Is there a model Illinois Mortgage Escrow Account Act notice (advising borrowers that they may terminate their escrow account when certain conditions are met) that also references Regulation Z’s additional requirements for canceling escrow accounts associated with higher-priced mortgage loans (HPMLs)? Can we modify our current notice to reference Regulation Z’s HPML escrow cancellation requirements?
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No, we are not aware of a model Illinois Mortgage Escrow Account Act notice that references Regulation Z’s additional requirements for canceling escrow accounts associated with HPMLs, but we submitted a request for such a notice to our Compliance Division Advisory Committee and will provide any responses we receive. Additionally, we believe you may modify…
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We qualify as a small servicer under Regulation Z. Are we required to provide monthly statements for all residential mortgage loans, or only for those that have escrow accounts? If monthly statements are required, can customers choose to not receive a monthly statement, or to receive an electronic statement only?
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We do not believe you are required to provide monthly statements for residential mortgage loans since you qualify as a small servicer under Regulation Z. Regulation Z contains an express exemption from the requirement to send periodic statements for residential mortgage loans when such loans are serviced by a small servicer — regardless of whether…
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We are a small servicer under Regulation X. How long we are required to keep escrow account analysis statements?
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We believe that Regulation X requires you to maintain evidence of escrow account analyses and escrow account statements for a minimum of two years. Regulation X requires creditors to retain evidence of actions required to be performed and disclosures made for two years. As Regulation X requires escrow account analyses to be performed and escrow…
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Does a mobile home loan need to comply with Regulation Z’s higher-priced mortgage loan (HPML) and ability-to-repay (ATR) requirements even if the mobile home is not affixed to land? If yes, how do we show compliance? Our mobile home loan is secured by only a promissory note with title and is not secured by a mortgage.
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Yes, we believe that a loan secured by a mobile home used as a residence must comply with Regulation Z’s HPML escrow and ATR requirements, even if not affixed to land. However, we do not believe a loan secured by a mobile home needs to comply with Regulation Z’s HPML appraisal requirements. Under Regulation Z,…
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What type of mortgage loans require that we provide the “IL Mortgage Escrow Account Disclosure”? We noticed that our loan documentation system generates this document for purchase loans but not for refinances.
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We believe you are required to provide an Illinois Mortgage Escrow Account Act disclosure at the mortgage loan closing for purchase loans but not for refinances. The Illinois Mortgage Escrow Account Act requires you to provide this notice at the closing of any mortgage loan made for the purpose of purchasing single-family owner occupied residential…
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A loan customer who owns multiple rental homes was dropped by their hazard insurance carrier after making three claims. The customer is current on their loan and makes monthly payments into a hazard insurance escrow. We used the escrowed funds to purchase insurance for the properties. Would this be considered force-placed insurance? The premiums are covered by the funds deposited into the borrower’s escrow account, so we have not posted the fees to the account as “force-placed.” We are a small servicer.
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We believe the insurance you obtained for the borrower would be considered force-placed insurance, even though you are able to pay for the premiums out of the borrower’s escrow account. Regulation X defines force-placed insurance as “hazard insurance obtained by a servicer on behalf of the owner or assignee of a mortgage loan that insures…
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How should we disclose property taxes on the Closing Disclosure (CD) that are to be paid at closing if the current tax bill has not yet been issued and the loan has a tax escrow? In many counties, the tax bills may be issued less than two months before the taxes are due. If a loan is scheduled to close before the tax bill has been issued, should we disclose the amount of the prior year’s taxes in the “Prepaids” section of the CD? If the new taxes are higher than what was disclosed on the CD, can we take the additional amount out of the tax escrow? If so, do we have the option of preparing a short-year statement to reanalyze the escrow payment, or should we let the shortage go until the annual analysis and risk payment shock to the customer?
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We believe you should list property taxes that will be due within sixty days after the closing in the “Prepaids” section of the CD, and we recommend obtaining publicly available tax information directly from the county, when possible, rather than relying on the prior year’s property tax bill, which may be out-of-date. In addition, you…