Not Properly Calculating Escrow Requirements

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Question:

I've been asked to offer options to the Loan Operations Manager for a situation related to escrow. This started with the bank's purchase of a smaller institution a little over a year ago. This smaller institution was apparently not properly calculating escrow requirements. To add to the problem, last year they gave huge refunds to borrowers in error. Now, we have borrowers whose escrow accounts are deficient and they cannot make the new calculated loan payments. What is the best plan of action to get these borrowers back on track?

Answer:

You have 2 options:

1. Analyze these accounts and issue a short year statement that indicates the borrower's shortage in the escrow accounts. This will allow them to catch up the account sooner than later and ensure that you don't have to advance funds when bills are due. You could then issue another short year statement when their original escrow account computation year rolls around.

2. Wait until the scheduled annual statement is to be produced and issue the information to the borrowers then. This runs a higher risk that your bank will have deficiencies (literally lending money interest free to the borrowers).

Either way, you have a serious customer service issue on your hands. It may be prudent to contact some/all borrowers to discuss this or send them a letter along with the shortage/deficiency letters. Good luck!

First published on BankersOnline.com 4/29/13