||Ask Dr. Don
Dear Dr. Don,
We bought our first home with a VA loan in 1986. We refinanced
in 1995 with the same mortgage company, so we've been with the same
company since 1986. They've changed names five times since then
and changed their address once.
Our taxes went up about $500 this year, and our homeowner's
insurance went up a penny, but our escrow payment went up $95 a
month. Why, if our escrowed items went up $500 a year, did our escrow
payments go up $1,200 a year? I called the mortgage company several
times trying to understand why we were paying almost $700 more than
we needed to, and they kept telling me I didn't have enough in escrow.
They suggested I send them an extra $600 for my escrow
account. I sent in the check with the second house payment after
the price increase. The added escrow didn't show up on our next
bill, so I called the mortgage company to see why my payment still
hadn't gone down.
Well it wasn't "in the system" yet. After
all that finagling it only dropped the payment down by $50. (Still
$50 more than original payment.) So I asked the woman why it was
still going to be $600 more than we needed in there.
I finally got a straight answer. I needed some cushion
in my escrow account. The account was $38.12 short after they paid
taxes and insurance, and the mortgage company requires a minimum
escrow balance of $600, even after the taxes and insurance are paid.
I can understand the mortgage company wanting a cushion,
but I think $600 is unreasonable. We have never had to have such
an excess in our escrow account before. It has always been close
to what was needed, and if it was short, they would tell us so we
could send in the difference.
I don't know if we can pay our taxes and insurance
ourselves. My husband said he read in the contract we can't. Is
Thank you for your help,
Estate Settlement Procedures Act addresses the amount of cushion
a lender can require in a mortgage escrow account. RESPA limits
the size of the cushion to a maximum of two months worth of escrow
payments. The mortgage lender (or servicer) reviews the escrow account
annually and sends a disclosure showing the prior year's activity
and any adjustments needed in the escrow payments that you will
make in the forthcoming year.
You should be able to figure out whether the cushion
is excessive by reviewing this disclosure, adding up the estimated
payments that will be made in the account in the current year and
dividing that amount by six. That is the maximum cushion allowed
in the escrow account. Cushions aren't required by RESPA, the act
just limits the size of the cushion. Some states require lenders
to pay interest on escrow accounts while others do not.
If the cushion your lender has required is above the
RESPA standard, you should contact the lender in writing in a separate
mailing from the mortgage payment. The lender has 20 business days
to acknowledge the complaint and 60 business days to resolve the
complaint. If the complaint is not resolved to your satisfaction,
you can then file a complaint with the U.S. Department of Housing
and Urban Development.
Keep making your monthly mortgage payment while going
through the complaint process. You don't want to hurt your credit
history by missing payments.
My guess is that you'll calculate the maximum cushion
and find out that the mortgage company has properly adjusted your
It's common for FHA and VA loans to have escrow
requirements. Mortgages with a low loan-to-value number or mortgages
where the homeowner has pledged the proceeds of a savings account
in lieu of having an escrow account are possible exceptions. You're
seven years in on this refinancing, so it's no time to negotiate
the escrow provisions in your current loan.
-- Posted: Oct. 22, 2002