First you can't "retro" the escrow account. You have to perform your analysis based on when you establish the escrow account and when the first payment is due.
Second, there is no legal basis for you to force the borrower to now establish an escrow unless they are in default of any of the provisions in the loan contract. What regulatory or legal citation did they quote to validate such a requirement.
Basically you have Level 2 violations that can't be cured.
We were not aware of the higher-priced mortgage rules that were in effect on 4/1/10 regarding escrow accounts.
I really don't know what to say about this statement.
The opinions expressed are mine and they are not to be taken as legal advice.