Posted by HisHughness on 10/12/10 4:17pm
Msg #356470

That danged aggregate adjustment

Can someone give me a one-sentence explanation of the aggregate adjustment that I can give to borrowers? The following is the *official* explanation:

"(d) Methods of escrow account analysis. Paragraph (c) of this section prescribes acceptable accounting methods. The following sets forth the steps servicers shall use to determine whether their use of an acceptable accounting method conforms with the limitations in Sec. 3500.17(c)(1). The steps set forth in this section derive maximum limits. Servicers may use accounting procedures that result in lower target balances. In particular, servicers may use a cushion less than the permissible cushion or no cushion at all. This section does not require the use of a cushion.
(1) Aggregate analysis. (i) When a servicer uses aggregate analysis in conducting the escrow account analysis, the target balances may not exceed the balances computed according to the following arithmetic operations:
(A) The servicer first projects a trial balance for the account as a whole over the next computation year (a trial running balance). In doing so the servicer assumes that it will make estimated disbursements on or before the earlier of the deadline to take advantage of discounts, if available, or the deadline to avoid a penalty. The servicer does not use pre-accrual on these disbursement dates. The servicer also assumes that the borrower will make monthly payments equal to one-twelfth of the estimated total annual escrow account disbursements.
(B) The servicer then examines the monthly trial balances and adds to the first monthly balance an amount just sufficient to bring the lowest monthly trial balance to zero, and adjusts all other monthly balances accordingly.
(C) The servicer then adds to the monthly balances the permissible cushion. The cushion is two months of the borrower's escrow payments to the servicer or a lesser amount specified by State law or the mortgage document (net of any increases or decreases because of prior year shortages or surpluses, respectively).
(ii) Lowest monthly balance. Under aggregate analysis, the lowest monthly target balance for the account shall be less than or equal to one-sixth of the estimated total annual escrow account disbursements or a lesser amount specified by State law or the mortgage document. The target balances that the servicer derives using these steps yield the maximum limit for the escrow account. Appendix E to this part illustrates these steps.
(2) Single-item or other non-aggregate analysis method. (i) When a servicer uses single-item analysis or any hybrid accounting method in conducting an escrow account analysis during the phase-in period, the target balances may not exceed the balances computed according to the following arithmetic operations:
(A) The servicer first projects a trial balance for each item over the next computation year (a trial running balance). In doing so the servicer assumes that it will make estimated disbursements on or before the earlier of the deadline to take advantage of discounts, if available, or the deadline to avoid a penalty. The servicer does not use pre-accrual on these disbursement dates. The servicer also assumes that the borrower will make periodic payments equal to one-twelfth of the estimated total annual escrow account disbursements.
(B) The servicer then examines the monthly trial balance for each escrow account item and adds to the first monthly balance for each separate item an amount just sufficient to bring the lowest monthly trial balance for that item to zero, and then adjusts all other monthly balances accordingly.
(C) The servicer then adds the permissible cushion, if any, to the monthly balance for the separate escrow account item. The permissible cushion is two months of escrow payments for the escrow account item (net of any increases or decreases because of prior year shortages or surpluses, respectively) or a lesser amount specified by State law or the mortgage document.
(D) The servicer then examines the balances for each item to make certain that the lowest monthly balance for that item is less than or equal to one-sixth of the estimated total annual escrow account disbursements for that item or a lesser amount specified by State law or the mortgage document.
(ii) In performing an escrow account analysis using single-item analysis, servicers may account for each escrow account item separately, but servicers shall not further divide accounts into sub-accounts, even if the payee of a disbursement requires installment payments. The target balances that the servicer derives using these steps yield the maximum limit for the escrow account. Appendix F to this part illustrates these steps."

Reply by Lee/AR on 10/12/10 4:32pm
Msg #356472

Call your LO. Unless this is for your benefit, in which case, "it's voodoo math". Seriously... not my job.

Reply by Deborah Breedlove on 10/12/10 4:41pm
Msg #356474

I just tell them that their lender collects "x" number of months for taxes and "x" number of months for insurance based on the estimated amount and the next due date for each. Then, using a very complicated series of formulas, they make an adjustment if it appears they will over-accumulate or under-accumulate funds in their escrow account. I've never had a borrower question me after that. They usually just look at me with a blank expression on their face, like "huh?" Then they say "ok, whatever."

Reply by BobbiCT on 10/12/10 4:45pm
Msg #356475

aka Aggravating Accounting Adjustment

Only because it's you who ask, Hugh. If you have borrowers with a good sense of humor and the absurd, try this explanation:

Your lender takes the total amount of your annual escrows and divides by 12 months in a year so that it collects enough money from you to pay your taxes, homeowners insurance, etc. This results in your mortgage payment plus escrow amount remaining the same each payment. Easy for you, easy for lender.

The federal Government decided lenders were escrowing too much money to pay your local taxes. Under the federal Government formula, your local taxes won't increase next year and your lender is not allowed to over escrow by even One Penny. The federal Government came up with its own formula to determine the maximum annual escrow amount that your lender can collect to pay your local taxes, which does not result in the same number when divided by 12 months in a year. The federal Government decided the adjustment for this discrepancy can never be greater than zero. Hence, the negative adjustment that you see.

If you would like a more detailed explanation, call your loan officer or Congressman. I'd love to hear either of them explain this.

Reply by Calnotary on 10/12/10 5:33pm
Msg #356481

Re: aka Aggravating Accounting Adjustment

I don't use "The Federal Gov." explanation any more since Feds are not very popular lately. And it's not my opinion I been told by so many borrowers.

Reply by C. Rivera Chicago Notary Services on 10/12/10 6:50pm
Msg #356503

how about, "You shouuld contact your LO on this one...?" n/m

Reply by Dorothy_MI on 10/12/10 7:04pm
Msg #356505

I say

This is an accounting adjustment so you don't have too much money in escrow based on a government formula. Have used this for almost 9 years and never had anyone question it (probably will next week now that I've spoken it -- LOL).

I then don't even hesitate but go one to the next line item.

Reply by MichiganAl on 10/12/10 8:42pm
Msg #356518

My one liner goes something like this:

The lender is allowed a two month escrow cushion, but the initial estimate put you over that limit so they had to readjust.

Reply by trnsa_IL on 10/12/10 9:41pm
Msg #356533

My statement goes something like this...

Pointing to the number on line 1001, "This is the initial deposit going into your new escrow account. It consists of (point) "x" months of homeowners insurance and (point) "x" of property taxes. That total is adjusted because the lender is only allowed to hold so much of your money in escrow."

I have (knock on wood) never been asked anything further about the adjustment. I just move right along to Title fees.

Reply by OR on 10/12/10 9:54pm
Msg #356534

Re: My statement goes something like this...

I say.... Title looked at you property taxes and insurance for the last few year. They come up with a total of how much it has been costing you. They they add a little bet to it. That way they will have enough in the account. If that expense goes up a little then they wont have to ding your in your payment. I got that from a LO. It works well for me.

As I understand it aggregate means collection

Here is what I found when I googled it.

An aggregate adjustment determines the amount of money placed in a borrower's escrow account at closing. An aggregate adjustment works to ensure that the borrower's escrow account maintains the necessary balance throughout the year; particularly when taxes and insurance are paid.

Reply by HisHughness on 10/13/10 12:08am
Msg #356539

Re: My statement goes something like this...

Lotsa good suggestions.

Thanks to everybody.

Now if someone can give me a safe one-sentence response when The Platinum Blonde says, "What makes you think I'm angry?"

Reply by LisaWI on 10/13/10 8:48am
Msg #356550

Re: My statement goes something like this...

I say just about the same thing as Tonya. They usually dont question it after that. Theres something about saying "they (lender) are only ALLOWED to take so much" that stops them from asking any other questions. If I try to get any more technical than that, they get all confused, so I keep it simple

Has anyone ever seen the formula for this by the way?