Compliance Blog

Annual Escrow Account Statements; 2019 GPS Now Available!

By: Reginald Watson, NAFCU Regulatory Compliance Counsel

Greetings Compliance Friends:

Today’s blog will provide a brief overview of the annual escrow account analysis requirements under the Real Estate Settlement Procedures Act (RESPA). Escrow accounts are typically set up on behalf of a borrower to collect and pay taxes, insurance premiums or any other voluntary charges associated with a federally-related mortgage loan.

When maintaining escrow accounts as a part of its mortgage servicing responsibilities, credit unions are required to comply with the requirements of section 1024.17 of Regulation X, the regulation implementing RESPA. Reg X requires credit unions to first conduct an initial escrow account analysis before establishing the escrow account. Section 1024.17(c)(3) also requires credit unions to conduct a subsequent escrow account analysis at the completion of the escrow account computation year to determine whether a deficiency, shortage, or surplus exists, and make any necessary adjustments to the account at this time. See, 12 C.F.R. §1024.17(f).

Section 1024.17(i)(1) requires credit unions to disclose this information to the member in an annual account statement that includes “an account history, reflecting the activity in the escrow account during the escrow account computation year, and a projection of the activity in the account for the next year.” The annual escrow account statement must be provided to the borrower within 30 days of the completion of the escrow account computation year. The escrow computation year is a twelve-month period beginning with the initial payment date.  My understanding is that credit unions often include the annual escrow account statement with the periodic statement. Alternatively, we have also heard of some credit unions that mail an annual escrow account statement with an IRS Form 1098 which is provided for federal income tax purposes. Credit unions can select either option depending upon when the computation year ends.

An escrow analysis may determine that a deficiency, shortage or surplus exists on the account. For reference, section 1024.17(b) defines a deficiency as the “amount of a negative balance in an escrow account,” whereas a shortage represents a positive balance that is insufficient to cover projected payments throughout the escrow computation year.   On the other hand, a surplus occurs where the current escrow balance exceeds the target balance necessary to cover the projected payments for the upcoming escrow computation year.

If the escrow account analysis confirms a deficiency, then a credit union may require the borrower to pay additional monthly deposits to the account to eliminate the deficiency if the account is less than 30 days delinquent. If the account is more than 30 days delinquent, a credit union may recover the deficiency as permitted under the terms of the loan agreement and state law. If there is a shortage, credit unions may allow it to continue to exist until it becomes a deficiency, or spread out the payment in equal amounts over a 12-month period. If the amount of the shortage is less than one-month’s escrow payments, a credit union may also make the business decision to require the member to pay it within 30 days.  If the escrow account analysis results in a surplus, the regulation requires the credit union to refund the surplus to the borrower if the amount is more than $50. For surpluses less than $50, the credit union has the option of crediting the surplus to the next year’s escrow payments. See, 12 C.F.R. § 1024.17(f)(2).

It is important to remember to submit this annual statement as RESPA imposes statutory penalties up to $50 each time a credit union forgets to submit this annual escrow account statement. See, 12 U.S.C. §2609(d). We have also heard of courts increasing the amount of the statutory penalty in situations where a mortgage servicer has established a pattern or practice of noncompliance.


NAFCU’s 2019 Credit Union Compliance GPS is now available! Updates include: S.2155 Amendments, Field of Membership, Privacy, TCPA, ADA, BSA and more!

About the Author

Reginald Watson, NCCO, Regulatory Compliance Counsel, NAFCU

Reginald Watson, NCCO, Regulatory Compliance CounselReginald Watson, NCCO, was named regulatory compliance counsel in August 2017. In this role, Watson helps credit unions with a variety of compliance issues.

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