Posted by Holly Lynch on 9/22/05 8:39am
Msg #66622

Question

Can someone provide me with a clear explanation of an Impound Authorization form? Thanks.

Reply by CHRISTINA KHANDAN on 9/22/05 8:44am
Msg #66624

impound account: impounds are for the payment of taxes and hazard insurance, collected monthly as part of the loan payment. And paid by the lender to your insurance and tax collector. Some people like this becuase it forces them to put money aside every month for those reasons instead of panicking when the time comes and they dont' have the funds.

Hope that helps.

Reply by Art_MD on 9/22/05 8:51am
Msg #66626

Impound authorization.

Same as escrow.
You are authorizing the lender to add a certain amount to you payment requirement to build up a credit for future taxes and hazard insurance (also called home owner's insurance).

Example:
Taxes are 1200 a year
Insurance is 600 a year.
Payment is due on taxes in june, insurance in january.
Loan signed october 1.
Taxes + ins = 1800 per year or 150 per month.

Insurance - you will need 600 in the account on Jan 1. you will be putting in $50/mo (600/12) for nov and dec. There is a shortage of 500. This would be required to be paid in closing on the HUD on line 1001.
Taxes - you will need 1200 on june 1. You will put in $100 for nov-may (7 mo). Total of $700. You are 500 short. This would be on line 1004 on hud.
After the first year, the monthly deposits to the impound account will accumulate sufficiently to cover the bills for the next year. If taxes/ins go up, there will be an adjustment in the monthly deposit.
Lenders often require impounds to protect themselves. If a borrower didn't have hazard ins. and the house burned down, the lender could lose - particularly if the borrower declared bankruptsy. So lender makes sure ins is paid.

Hope this helps.

Art

Reply by PAW_Fl on 9/22/05 9:10am
Msg #66635

Depending on the wording of the form, an authorization can do four things:

(1) Authorize the lender to establish an impound account for the escrowing of monies for taxes, insurance, and possibly, MI.

(2) Authorize the lender to make payments from an impound account to the companies or authorities on record to receive the payments (taxes, insurance, MI, etc.)

(3) NOT authorize the lender to establish an impound account for the escrowing of monies.

(4) Authorize the settlement company to establish an escrow account to receive funds from the lender for subsequent payment to those entities shown on the HUD.

Items (1) through (3) are the most common, but item (4) has become more popular lately. Especially due to the disclosure requirement that any interest earned on the escrow account is retained by the settlement company.

Reply by Kiso on 9/22/05 9:43am
Msg #66639

Art and Paw.......great explanations, helped me, too! Thanks

Reply by newlysmomva on 9/22/05 10:44am
Msg #66657

Interest is retained by settlement Co? Do they charge for maintaining escrow accts?

Reply by PAW_Fl on 9/22/05 11:15am
Msg #66682

It's part of their fees. The settlement escrow account only holds the lenders funds for a short period. Funds are disbursed from that account very quickly.

As for the borrowers impound (escrow) account, some lenders actually have a fee when an account is NOT established, since they would not be getting any interest earned had an account been established.

Reply by newlysmomva on 9/22/05 12:02pm
Msg #66704

Thanks. Learn something everyday.