If the taxes due at this time of the year are higher than the escrow balance in the Higher priced mortgage loan, is the bank allowed to advance on the loan to pay property taxes by increasing its principal balance, if the contract allows the advancement of taxes. Instead of paying taxes from escrow?

No - you advance the funds and recoup it at the next analysis if the loan is not past due.

1024.17(k) Timely payments. (1) If the terms of any federally related mortgage loan require the borrower to make payments to an escrow account, the servicer must pay the disbursements in a timely manner, that is, on or before the deadline to avoid a penalty, as long as the borrower's payment is not more than 30 days overdue.

(2) The servicer must advance funds to make disbursements in a timely manner as long as the borrower's payment is not more than 30 days overdue. Upon advancing funds to pay a disbursement, the servicer may seek repayment from the borrower for the deficiency pursuant to paragraph (f) of this section.

Correct, the loan is not past due and has a good paying history. The loan officer wants to advance on the loan principal balance, instead of escrow balance because there is not enough escrow balance to pay the taxed due. Thank you.

Tell your loan officer to leave loan servicing issues to loan servicing and compliance. They need to be focusing on new business.

What if the loan is past due? What are we allowed to do?
Loan is HPML
Insurance is due
Loan is 102 days past due
Officer is wanting a letter sent out to borrower asking for insurance funds.
I read 1024.17 about what to do if payment is not more than 30 days past due but cannot find what to do if payment is more than 30 days past due?

If the loan is more that 30 days past due, then the loan is in default and your actions will be dictated by the provisions in your security agreement and State law.