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#2246429 - 12/10/20 10:06 PM Option to Pay Shortage on Annual Escrow Statement
Inherent_Risk Offline
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I'm just catching up on my summer reading of Supervisory Highlights, and this one struck me as strange, so I wanted to make sure I was reading it correctly. The September 2020 CFPB Supervisory Highlights (https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-22_2020-09.pdf) includes the following:

Quote
Examiners found that one or more servicers sent consumers annual escrow account statements which included options for repayment of shortages and deficiencies that are not enumerated in Regulation X. Specifically, for borrowers with either shortages or deficiencies equal to or greater than one month’s escrow account payment, servicers listed two options borrowers could choose for repayment: (1) equal monthly payments over a 12-month period or (2) a lump sum payment. The first option is a permitted repayment option under Regulation X, while the second option is not. Regulation X requires that annual escrow account statements include an explanation of how shortages or deficiencies are to be paid by borrowers. Because the enumerated repayment options are exclusive, the servicers violated the regulatory requirements by sending disclosures that provided borrowers with repayment options that they cannot require under Regulation X.


Now I know that a bank can't REQUIRE a borrower to pay the full amount of a shortage of more than one month in a lump sum, but is it really a violation to give borrowers the option to do so? Am I reading that right?

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#2246433 - 12/10/20 10:31 PM Re: Option to Pay Shortage on Annual Escrow Statement Inherent_Risk
raitchjay Offline
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I think you're reading it right.

This: (vii) An explanation of how any shortage or deficiency is to be paid by the borrower; and

wouldn't seem to jibe with an annual escrow account statement that showed a lump sum payoff, since that isn't prescribed.

I don't think it's a violation to ACCEPT a lump sum payoff for a shortage or deficiency, just a violation to SHOW it as an option on the annual escrow statement.
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#2246443 - 12/11/20 01:38 PM Re: Option to Pay Shortage on Annual Escrow Statement Inherent_Risk
Inherent_Risk Offline
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That's how I read their guidance to, but I gotta say that doesn't make any sense. It's not hard to both provide an explanation of how the shortage will be treated AND provide an option to treat it differently if the customer so chooses.

"You're shortage will be paid over the next 12 months at $X a month. If you would prefer, you have the option to pay the whole amount in one lump sum of $Y."

The reg specifically states that "The servicer may deliver the annual escrow account statement to the borrower with other statements."

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#2246447 - 12/11/20 02:34 PM Re: Option to Pay Shortage on Annual Escrow Statement Inherent_Risk
raitchjay Offline
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OK
I think it makes sense the way the section reads. Whether it makes sense otherwise....well......
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#2246448 - 12/11/20 02:51 PM Re: Option to Pay Shortage on Annual Escrow Statement Inherent_Risk
raitchjay Offline
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The reg specifically states that "The servicer may deliver the annual escrow account statement to the borrower with other statements."

"With other statements" doesn't mean as part of the annual escrow account statement. I think that means if you want a totally separate disclosure that says "you can pay this off in a lump sum", then that's allowed.
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#2246449 - 12/11/20 03:02 PM Re: Option to Pay Shortage on Annual Escrow Statement Inherent_Risk
Cowboys Fan Offline
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Has anyone checked with your core vendor to see if they're making this change? I just looked at one of our statements (Fiserv Navigator) and is definitely includes the lump sum option.
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#2246450 - 12/11/20 04:26 PM Re: Option to Pay Shortage on Annual Escrow Statement Inherent_Risk
rlcarey Offline
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I agree with raichjay - if you go back to any of the old model annual escrow statement forms produced by HUD, you will never see such an option included. I am not sure who cooked up that idea- but it was a bad one.
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#2246453 - 12/11/20 05:54 PM Re: Option to Pay Shortage on Annual Escrow Statement Inherent_Risk
Inherent_Risk Offline
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I still don't see how a requirement to tell them what you plan on doing equates to a prohibition on also telling them about other options they have.

In addition to allowing for additional statements or materials. The intro to the annual statement content requirements says: "The annual escrow account statement must include, at a minimum, the following" How is adding additional information to give borrowers more options a violation here. I can see if the statement read: "You have a shortage of $Y. You can either pay it all now or pay $X a month over the next 12 months." You could say that you're not telling them how it is to be paid. However, the earlier statement I quoted has how it is going to paid. Then it also tells them they can pay it all now. I just don't see what that is violating.

I guess the CFPB has spoken though, and now we'll waste a bunch of resources making sure borrowers don't know about their options. Or maybe just put the option on a different peice of paper. That'll protect those consumers.
Last edited by Inherent_Risk; 12/11/20 09:43 PM.
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#2246646 - 12/16/20 10:17 PM Re: Option to Pay Shortage on Annual Escrow Statement Inherent_Risk
John Burnett Offline
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Let's agree that we may not agree with the Bureau's read of the rule. But the Bureau interprets the rule and any servicer big enough to be examined by the Bureau will need to either convince the Bureau it's wrong (good luck there) or follow the Bureau's reasoning.

That doesn't mean that other regulators will agree with the Bureau (but they often do).

That said, one way to have it both ways is to exclude the option from your notices, but, if the borrower says they want to pay a lump sum, accept it and make a note it was the borrower's idea.
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#2246681 - 12/17/20 05:11 PM Re: Option to Pay Shortage on Annual Escrow Statement Inherent_Risk
InFairness, CRCM Offline
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I agree, IR. It seems a bit absurd to prohibit telling consumers their options.
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