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How Close Attention to the Initial Escrow Statement Can Prevent Surprise Payment Changes for Borrowers

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    Published on February 24, 2022

    How Close Attention to the Initial Escrow Statement Can Prevent Surprise Payment Changes for Borrowers

    Written by Kathleen Nystrom

    Blog Hero Initial Escrow Statement 800X400

    An escrow analysis is one of the most difficult things to explain to borrowers, mostly because taxes and insurance fluctuate throughout the life of the loan. Because of this fluctuation, it is very important that the first escrow calculations are correct from the very beginning. If there are errors, it’s the borrower who faces an unwanted surprise later on when their payment amount changes. 

    The initial escrow statement, or IES, may not be as “glamorous” as the note and the mortgage, but it is still an extremely important document. The IES is intended to calculate the escrow payment and ensure there are no surprise payment changes for the borrower during the first year of their loan. If not completed correctly, the borrower’s payments could increase, possibly before they even make their first payment. That obviously leads to dissatisfaction, a result we all want to avoid.

    Here are four critical items to review when completing the initial escrow statement to help avoid a surprise payment change in the first year of the loan:

    1. Escrow projection

    The projection must include all escrow items. If an item was paid at closing, confirm the escrow payment includes 1/12 of that item.

    2. Negative balance

    If there is a negative balance anywhere in your projection, the IES is incorrect.

    3. Cushion amount

    The cushion amount must be established at the lowest point of your projection balance. The cushion amount cannot include PMI / MIP.

    4. Tax and insurance amounts and frequency

    Verify the amounts for taxes and insurance as well as their frequency. Timing of disbursements affects the low point of the projection.

    Overall, initial escrow statement is one of those things that tends to be taken for granted, but it can cause unnecessary borrower dissatisfaction when not completed properly. Taking a few extra minutes to check and double check the IES information can save everyone a headache down the road.

    Have a question for our mortgage servicing department?

    Send an email to knystrom@myservion.com and your question might be answered in a future newsletter!

    Need a partner for mortgage loan servicing? Consider Servion. Learn more about our servicing capabilities.

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    Published by Kathleen Nystrom
    Director of Loan Servicing
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