Posted by Yowheelz on 5/29/09 9:05am
Msg #290261

$900 fee not to escrow taxes and insurance

BO was not required by lender to escrow and was given the option. BO had great credit rating, high income and decided not to escrow. At settlement table he was looking over HUD and found out that they had charged him a $900 fee for not escrowing. He called LO and asked what the charge was if he did escrow and they told him nothing. Thats madness, $900 fee not to do something. LO was told by BO to either take off the fee or rewrite the loan to include escrow or BO would not sign. They took it off.

Reply by HKB on 5/29/09 9:26am
Msg #290267

The BO did the right thing .... how companies find new ways to rip off money .... I'm glad for the smart BO

Reply by Linda_H/FL on 5/29/09 9:32am
Msg #290270

That's not unusual but IMO his LO should have told

him up front it would happen - many lenders charge approx. an eighth of a point to waive the escrows JME

Reply by Alz on 5/29/09 9:49am
Msg #290278

I am always amazes at all of the fees that BO have to pay, so much so that I find myself negotiating with my lenders and escrow companies whenever I refinance or purchase. This business sure has taught me a great deal over the years.

Reply by PAW on 5/29/09 9:55am
Msg #290282

Look at it from the lender's perspective

When a borrower escrows taxes and insurance, the lender receives the interest on that account. When the borrower waives escrow, the lender is out the interest that would have been earned on the escrow account. Therefore, to 'make up' for the potential lost revenue, lenders often charge a fee to waive escrow. Also, when escrow is waived, the risk on the loan becomes greater. Why? Because if the borrower neglects to pay the property taxes, the taxing authority has the right to place a lien on the property and possibly seize the property. The lender then may be out in the cold. And, if the borrower fails to maintain proper homeowner's property insurance, the lender may be out in the cold if something happens to the property (e.g. flood, hurricane, fire, etc.).

Reply by parkerc/ME on 5/29/09 10:01am
Msg #290288

Re: Look at it from the lender's perspective

I thought the BO also gets interest on funds held in escrow.

Reply by Linda_H/FL on 5/29/09 10:05am
Msg #290290

No..that interest goes to the lender

And many loans have a disclosure the borrowers sign indicating they understand any interest accrued on the escrow balances is retained by the lender and not payable to the borrower.

Reply by parkerc/ME on 5/29/09 10:15am
Msg #290294

Re: No..that interest goes to the lender

Right. Forgot about the option of having an interest bearing account for an additional fee. Sigh. My how times have changed.

Reply by Yowheelz on 5/29/09 10:32am
Msg #290302

I agree with all of you, endpoint BO was never told of fee n/m

Reply by Todd/OH on 5/29/09 2:43pm
Msg #290345

Re: Look at it from the lender's perspective

The lender isn't "allowed" to invest escrow funds and earn interest. There is an obvious reason why they "can't" but they do. If the investment goes south, where do the funds come from to pay taxes - a potential super-ceding lien against any mortgage?

I'm no guru here, but isn't it against regulation to charge a fee for waiving escrows? Dept of HUD surely would have a problem with this.

Reply by PAW on 5/29/09 5:33pm
Msg #290384

Re: Look at it from the lender's perspective

I believe your are mistaken Todd. Actually, some states require that interest be paid on all escrow accounts. In 1975, a law was passed allowing lenders to take on excess funds in the impound (aka escrow) accounts to cover cost increases in taxes and insurance. I believe that same law allows the lender to keep the interest rather than sending it to the borrowers.

GMAC had a big lawsuit in 1992 about the excessive collection of funds for escrow, so limits were placed on the account.

I don't think HUD would have a problem with fees in lieu of interest earned. At least I've not seen anything about that in the many years I've been in mortgages. AFAIK, there's nothing on the books that disallows lenders charging a fee for waiving escrow.

Reply by HKB on 5/29/09 10:51am
Msg #290307

Re: Look at it from the lender's perspective

I always like to read your point of view .... very logical, to the point and informative.

Thank you for your time.

HKB

Reply by NH Loan Processing Center on 5/29/09 6:18pm
Msg #290389

There is a 0.25 hit on any conventional loan these days to waive the escrows. Sometimes the borrower does not see it because some lenders deduct it from the YSP but the borrower is paying for waiving those escrows one way or another every time. The LO should have disclosed it the moment the borrower expressed a desire to do so.