A customer built a home in 2020, and wants to refinance into a secondary market fixed-rate now that the home is completed. The property is assessed this year at the unimproved value. It's a $500,000 house, so the taxes will skyrocket in the future. Can we estimate the yearly tax and base escrow amounts on the estimated improved value, or does FNMA only use the previous tax bill? I don't want the customer to have the payment shock.

FNMA: First mortgages generally must provide for the deposit of escrow funds to pay as they come due, including taxes, ground rents, premiums for property insurance, and premiums for flood insurance. However, escrow deposits for the payment of premiums for borrower-purchased mortgage insurance (if applicable) are mandatory. For the calculation of the monthly real estate tax payment lenders must comply with all federal and state regulations in calculating the amount to be collected for any established escrow account.

1024.17(c)(7) Servicer estimates of disbursement amounts. To conduct an escrow account analysis, the servicer shall estimate the amount of escrow account items to be disbursed. If the servicer knows the charge for an escrow item in the next computation year, then the servicer shall use that amount in estimating disbursement amounts. If the charge is unknown to the servicer, the servicer may base the estimate on the preceding year's charge, or the preceding year's charge as modified by an amount not exceeding the most recent year's change in the national Consumer Price Index for all urban consumers (CPI, all items). In cases of unassessed new construction, the servicer may base an estimate on the assessment of comparable residential property in the market area.

Thank you so much! I missed the 1024.17(c)(7).

Just remember that an escrow analysis cannot reach out more than a year, so if the first increased tax bill won't be due in that year, you cannot use your estimate of that increased bill for that initial escrow analysis.

If that is the case, you may allow the borrower to agree in writing to pay more than the escrow payment resulting from the analysis, but you cannot require it.