I think the answer is NO, but I need confirmation:

If a borrower has a positive balance in their escrow account (due to collecting for FP insurance premiums) and going forward, the bank is NOT going to escrow for these premiums, instead, they will be added to the loan balance, we were going to send the borrower a check for their positive escrow balance.

Loan officer would like to apply this amount to the loan to bring down the total amount past due.

I say No, since this is money the borrower paid back to us for FP premiums. If there is an excess and we are no longer escrowing for future premiums, then we have to send the money back.

Right?

Does the borrower owe the bank money for Forced Placed premiums? If so, that money should go to cover the FP premiums.

If not, wouldn't the right of off set be able to apply that money to any outstanding/over due payments? We would apply to the overdue payments before sending a refund to the customer.

The borrower does not owe us anything for the FP premiums.

Examiners are here for a S&S exam (oddly enough) and this is a file they are going to be looking at.

Escrow money is NOT yours. You can never apply it to the loan balance.

Thanks, David! That is good to know!!