I have been asked if there is any way to finance the initial escrow payment for customers that do not have cash available for the initial payment and cushion. My initial response was no - but I wonder if I am missing something. Any guidance is appreciated!

We do it all the time. It's simply a part of the closing costs so you will either add it to the loan or reduce the amount of proceeds paid to the borrower.

And the amount lent to cover the initial escrow payment is considered "new money" subject to rescission, correct?

No. OSC 226.23(f)(4).

Sorry Dan, I didn't clarify my question.

We do balloon loans. Customer comes in at time of balloon refinance. Loan is now subject to HPML and therefore escrow.

No other new money except the amount to cover the initial escrow payment. Would that amount be subject to rescission?

Thanks

No. Under the above cite it would be considered part of the closing costs for refinancing the loan.

What about if we also lend them the money to pay for the full year hazard premium required at closing? Is that rescindable as "new money"?

From the Commentary to 1026.23(f)(4):

. . . For purposes of the right of rescission, a new advance does not include amounts attributed solely to the costs of the refinancing. These amounts would include §1026.4(c)(7) charges (such as attorneys fees and title examination and insurance fees, if bona fide and reasonable in amount), as well as insurance premiums and other charges that are not finance charges. . . .