I have a bank that wants to begin charging existing customers a $60 annual fee to maintain their escrow account for taxes and insurance. I can't find anything that tells me they can't charge but if they add it to the principal, couldn't that change the APR and require redisclosures of some sort? The Fed, HUD, and a few consultants haven't been able to answer this one-any thoughts? or experience?

In CA, this is covered in the Civil Code.

"§2954(b) Every mortgagee ...shall furnish ... an itemized accounting ... The mortgagee ... shall be entitled to receive one such accounting for each calendar year WITHOUT charge and shall be entitled to additional ... (copies range from 50¢ to $5.00)"

I would expect other states to have similar requirements.

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Al Miller, CRCM
Fremont Bank (CA)
(510) 790-5825
(510) 505-5211 FAX

Opinions expressed are my own and not necessarily shared by my employer.

I believe you'll find this is a state law issue. While we do not practice this, I have heard of others that do outside of my state, TX.

The fee would have to be best described so as to conform with applicable laws. You may, as an example, stay away from citing a cost for maintaining the account, but show charges for the gathering of tax bills and receipts and insurance policies.

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Andy Zavoina
Opinions stated are not necessarily that of my employer.

There's more to this than meets the eye. First, there is Truth in Lending. The fee should be treated like an inspection fee. It becomes a finance charge. If you impose such a fee and it is not included in your total finance charge, you will soon exceed the finance charge tolerances and find yourself paying the fee back.

Second, remember that RESPA prohibits charging a fee for preparing the HUD-1 and TIL disclosures. If banks start to charge fees for preparation of escrow accounts (assuming that they have dealt with the TIL problem) they will find themselves back in Congress facing more laws. This idea is right up there with paying interest only on the investable balance of deposit accounts and that brought us Truth in Savings. Don't do this!

Lucy,
I SECOND that thought! There are justifiable fees and then there are gouges. The ONLY reason that many people have escrow accounts for taxes and insurance is because the lender REQUIRED it. Now to charge for the priviledge on top of it seems....oh...like a low blow.

Now it would be different if people said to their lender "Oh please tie up my money all year so that I don't have to think about writing a check to my insurance company or tax collector." Then the customer would be requesting a service, fees could be assessed and properly disclosed.

Otherwise, I think the bank is asking for more trouble than it realizes. IMHO

I think many banks, given a choice of escrowing funds or simply filing the statements and receipts sent in by customers, would choose the latter. We would.

But in real life you have to call, send letters, remind people and discover that they robbed peter to pay paul and the tax money was spent on a vacation. Is that a good customer? You can argue that all day long and perhaps when the loan was made 10 years ago things were different.

Escrows are a necessary evil. We have to use them. Should we charge a separate fee for the work that goes into maintaining them, well that is a good question. While I personally believe that should be considered a part of doing business and included in the interest rate, I can see a management argument that it isn't.

In the compliance world, we often address the problems, we don't necessarily create them.

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Andy Zavoina
Opinions stated are not necessarily that of my employer.

Just don't get me started on my war chest of escrow/impound accout horror stories.

There are bad apples in both barrels - the careless consumer who takes a vacation instead of paying the property taxes - and the careless Servicer who mixes up the the APN's and pays the wrong tax bill yet will refuse to correct any problem by saying it's the borrower's responsibility.

And I hate to say this - but these days I've seen more errors in that second barrel. AND, since many of these servicers aren't regulated by a federal banking agency, it's very difficult to get anyone's attention to fix the problem.

Finally...they decided too many problems and when they checked older disclosures, really became a question of what they had agreed to. Hated to shoot them down on a fee income but the risks were too great in my book. Thanks for all the input.

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