Understanding Escrow

The Department of Housing and Urban Development (HUD) governs escrow accounting procedures under the Real Estate Settlement Procedures Act (RESPA). The Act requires that we use specific language on the disclosure and specific methodology to determine your monthly mortgage payment.

See below for additional information, escrow definitions, and frequently asked questions that may help you better understand your annual Escrow Analysis Statement.

Coupons and Payments

If you pay by coupon, a new coupon book will be mailed under separate cover. If your payment is made using our Electronic Funds Transfer (EFT) service, the draft will automatically change to reflect the new payment amount and will be effective with the date indicated. If you have additional funds being applied to principal each month, we will continue to draft this amount over and above your new monthly payment.

Please note that changes in your monthly payment often result from increases or decreases in your property's insurance premiums, taxes, or assessments. An increase in any item means that the amount paid from your escrow account was greater than the amount previously collected, resulting in a shortage. This shortage is spread over a minimum 12-month period and added to your new escrow payment. If you prefer, you may pay the shortage in full, using the coupon attached to the Escrow Analysis Statement.

If you have deposited more money in your escrow account than is required for related disbursements, this results in a surplus and will appear on the Escrow Analysis Statement. If the surplus amount is $50.00 or more and your loan is current, a check is attached to the bottom of the Escrow Analysis Statement. Any surplus of less than $50.00 will be credited to your monthly payments.

Explanation of Statements

The Escrow Analysis Statement is divided into three sections, which explain the escrow activity and how your monthly payment is determined.

Section 1:

This section is a comparison of your current and new payment amount of principal and interest, total escrow deposit, and repayment of any shortage that may exist.

Section 2:

This section lists a 12-month running escrow balance to determine the appropriate target balance, and to determine if a shortage or surplus may exist. This is a projection of the activity in your escrow account for the following 12 months.

This section also included the optional shortage payment coupon in the event of a shortage, so that you may repay the shortage in one lump sum if you wish. The shortage repayment is automatically prorated over a 12-month period and is included in the payment that is listed on the Escrow Analysis Statement. If you repay the shortage in full, you payment will be reduced to reflect the difference of the shortage-spread amount. If you have a surplus greater than $50.00 and your account is current, a check will be attached to this portion instead of a shortage coupon.

Section 3:

This section is a review of the actual activity in your escrow account since your last analysis.

Escrow Definitions

For a list of escrow related definitions, click here.

Frequently Asked Questions

For a list of frequently asked mortgage and escrow related questions, click here.