Hi - we are taking a look at our processes for escrow waiver fees and I'd like to see if anyone has any advice or best practices around disclosing escrow waiver fees for loans being sold on the secondary market, particularly with best effort locks that are based off an investor's rate sheet. I am also asking our Compliance dept. here to take a look.

The crux of the problem is that our secondary market investors all do slightly different things when it comes to waiving escrows and pricing a loan. Some charge a separate line item as a flat percentage of the loan (which varies in the 0.125% to 0.250% neighborhood). Others (most) actually adjust the amount of the Servicing Release Premium (SRP) we are paid for the loan at purchase, again by varying amounts and in some cases differing by loan term, program, etc . . . even with the same investor, but often even less than 0.10 in difference. On our best-efforts locks, this ends up affecting the borrower price on the loan if they decide to waive escrows since we use the investor's price and deduct our margin to determine borrower price.

The issue then becomes, how do we quote or disclose this pricing difference? What we’ve been doing for the past several years is disclosing a uniform 0.25% escrow waiver fee which we essentially split out from the borrower points as a separate line item. The big issue with that, is since it doesn’t necessarily match the investor price difference if the borrower then decides they DON’T want to waive escrows, we have to remove that entire 0.250% fee for the borrower even if our investor price is only getting better by 0.10 for example and all of a sudden we are having to eat that extra 0.150.

The idea of entering the SRP difference as an “escrow waiver fee” to be disclosed is not super appetizing to me but it probably would be the most accurate way to pass on these pricing adjustments. I do not think there is any way to realistically automate these based on all the factors that could adjust it, plus how often investors update their SRP grids, etc . . . would make this most likely a manual lookup and entry process.

I could see one argument that since we as the "creditor" are not technically charging a specific fee to waive escrows, would we even need to split out a separate fee at all to be disclosed under 1026.38[l][7][i][B][2]? But that doesn’t seem right to me either as if I’m a borrower waiving escrows I’d expect to see something designated as an “escrow waiver fee” if it affects my pricing.

If we were to “tack on” our own additional standardized fee on all escrow waivers (say 0.125), then I’d see that as potentially double dipping if we’re already passing on the investor pricing differences as well.

Any input is appreciated, thank you.

Let me preface this by saying I have never dealt with escrow waiver fees and if they are as complicated as you have described I'm certainly glad I have not.

Most conversations I have seen concerning escrow waiver fees the FI charged a flat fee. How they arrived at that I do not know but I would speculate it was most likely based on an average of their costs for the waivers.

Others that currently charge these fees may be able to give you more insight.

The BOL Lending Triage started today so be patient for additional responses.