Mortgage Servicing Escrow Accts Deficiencies Shortages Surpluses 4 – What can the servicer do if the escrow account analysis shows a shortage?

Compliance > Regulation X and Z - Servicing
Q:   What can the servicer do if the escrow account analysis shows a shortage?
 
A:   (UPDATED 6/2/2021): It depends on the amount of the shortage.
 
If the shortage is less than one month’s escrow payment, then the servicer:
  • May allow a shortage to exist and do nothing to change it,
  • May require the borrower to repay the shortage amount within 30 days, or
  • May require the borrower to repay the shortage amount in equal monthly payments over at least a 12-month period.
 
If the shortage is equal to or more than one month’s escrow account payment, then the servicer:
  • May allow a shortage to exist and do nothing to change it, or
  • May require the borrower to repay the shortage in equal monthly payments over at least a 12-month period.
 
12 CFR § 1024.17(f)(3).
 
The specified repayment options in Regulation X are exclusive. Therefore, a servicer cannot include in the annual escrow statement any options for repayment of shortages that are not specified in Regulation X, such as a lump sum payment option for a shortage that is equal to or more than one month’s escrow payment.
 
 
This Q&A was contained in the CFPB’s Mortgage Servicing FAQs – version 3, as of June 2, 2021 (which may be updated from time to time).  This may be found on the CFPB’s website here:  https://files.consumerfinance.gov/f/documents/cfpb_mortgage-servicing_frequently-asked-questions.pdf
 

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