Waiving Escrow

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Question:

We are working with a consumer mortgage customer and their escrow account for their insurance and taxes. They have a hardship case due to advanced age and declining health issues, and we are looking at ways to keep their payments as low as possible. I know that it is required by regulation to keep payment reserves in the escrow account, but if we reduce or waive those requirements could we still be cited for not following the letter of the regulation?

Answer:

If the escrow is required, there is no ability to waive it. If the escrow is not truly a required account, such as an HPML or there is flood being escrowed, the bank could no longer require the escrow, but does the bank want to do that?

From a safety and soundness perspective, what will the bank do when the bills are due for payment and there is neither an escrow balance nor cash available to the borrower? The bank would have to add to the loan which is an unplanned event and could also trigger a classification requirement on the loan. If funds are tight, maintenance on the home is likely at a minimum and this needs to be factored into the LTV as well.

In short, if required and waived, it will be a violation unless there is no requirement for the escrow based on the loan.

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