Newspaper article St Louis Post-Dispatch (MO)

Uncle Sam Tightens Rules on Mortgage Escrow

Newspaper article St Louis Post-Dispatch (MO)

Uncle Sam Tightens Rules on Mortgage Escrow

Article excerpt

Your battle for truth in mortgage escrow is finally coming to an end. Starting this spring, mortgage lenders will formally be on notice that it's illegal to pad your costs.

They have known (or suspected) it for years. Twenty-six state attorneys general and many private lawyers have won lawsuits or out-of-court settlements against specific lenders who overbilled escrow accounts. But most lenders complied only if they were sued, while waiting for the federal government to settle the rules.

"I'm not going to say that there wasn't any over-escrowing," says Robert O'Toole, a vice president of the Mortgage Bankers Association. "The issue is how to do the accounting." According to the U.S. Department of Housing and Urban Development (HUD), 88 percent of mortgage lenders are still using an escrow accounting method that transfers too much money from your account to theirs. Accounting issues aside, the states' lawsuits showed that many lenders have been violating escrow rules laid out in their own mortgage contracts.

HUD has decreed that, starting April 27, new mortgage loans (including refinancings) have to be brought within the plain reading of the law. This could save you up to $250 on future real estate closings alone.

Over the objections of 23 states, however, HUD gave lenders three years to bring older mortgages into compliance. HUD estimates that lenders are holding at least $1.5 billion that will have to be returned to consumers once the regulations take full effect.

The issue is the size of your mortgage escrow account. Every mortgage payment you make typically includes a contribution to escrow. From it, the lender pays your real estate taxes and homeowners insurance premiums. Under the 21-year-old Real Estate Settlement Procedures Act, lenders are required to bill your escrow payments at a rate that just covers the bills plus no more than a two-month cushion for unanticipated expenses.

But until now, specific regulations on this point were never issued and most lenders took advantage of that fact. …

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