We have a loan that closed back in January of last year. My loan servicing department, in house, completed the annual escrow account analysis and sent the borrower the required statement. They just received new tax information increasing the school taxes are great deal. He is asking if they can do a short year analysis.

From the way I am reading the regulation we cannot. Only options I see are setting up a voluntary escrow account or maybe take a discretionary payment. (The borrower reached out to us to make this correction.)

Am I correct in my thinking? Can we even accept the discretionary payment or set up the voluntary account? Or do we have to pay out and then seek reimbursement?

Please advise. Thank you.

Why do you think you cannot do a short-year statement?

There are 2 reasons. The first is procedural. The way I interpret 1024.17(i)(4)(i&ii) is that it would change the computation year. Our loan servicing department completes the analysis on a per loan basis. I feel that this can cause a procedural issue going forward (unless we can complete another short year analysis the following year when originally scheduled) .
The second is due to the way I interpret 1024.17(f)(1)(ii) , which is that we can only complete 1 analysis a year unless "a servicer advances funds in paying a disbursement, which is not the result of a borrower's payment default". We have not yet advanced funds as we only just received the information.

If I am interpreting this incorrectly or completely missing something please point me in the right direction.

1. There is no rule that says you cannot change the cycle back with another short year statement, if you so choose.

2. That is just an example in saying you can't go after them for the deficiency without performing an analysis.

Bottom line is that it is in the consumer's best interest so that they are not burdened with a large payment shock. A voluntary escrow payment involves an anticipated shock, such as the real property being assessed with a new house versus bare land. It is not appropriate for an actual known event.

I agree with what you are saying in that I believe we should do what is in the borrower's best interests but I did not get that from the way the regulations are written. I do see what are saying and definitely not disregarding, I think I am liking the 2 short year statement option.

What are your thoughts regarding discretionary payment into the escrow account? The borrower from what I am told did request this. My only issue with this is that when the next analysis will be done there will be a payment jump at that time.

Other than it impacting the actual required payment, if they are paying their normal current payment plus some amount of a discretionary payment starting now, what payment jump would there be?

I was thinking of a 1x discretionary payment for the full amount not a monthly. I honestly didn't even think that could be done (almost sounds the same as voluntary escrow) and I would be concerned that the additional payments would go towards the principal and not go into its intended purpose (We are a small servicer and I do not know if my department and accounting dept could handle that). So next January when the analysis is done, the payment would jump from the current payment. From my understanding there is a great deal of difference in the tax payment.