Should you, can you, avoid escrowing taxes and insurance?
It’s automatic, take out a mortgage loan and the lender sets it up with an escrow account holding your money to pay property taxes, property insurance, private mortgage insurance and perhaps other charges. We’ll examine this from different perspectives in multiple posts.
- Can you waive escrows? Which ones? What’s the cost?
- Should you waive escrows? Pros and Cons; Risks and Rewards.
- Missed tax or insurance payments, DELFUS letters, and fees/penalties.
- Shortages and escrow increases.
The escrow waiver option may not be good for first time homebuyers or first time borrowers. Escrow remains a sore spot for many, especially when lenders make errors. In a recent consulting engagement, I helped out a large mortgage servicer who was making more than 400,000 disbursements totaling more than $650 million every month across more than 30,000 taxing jurisdictions. That’s 5 million payments totaling $8 billion dollars every year. Do you think there were penalties and interest? These were more than $300,000 per month for the servicer and $300,000 per month for the tax processing company used. That’s $7 million in penalties, fees and interest every year. That doesn’t include missed discounts for early payment available in some states.
Who was first in line to be charged for this? That’s right, the borrower was first in line. Reviewing each time a penalty, fee or interest charge occurred for who made the error, how the error was made and how it should be fixed wasn’t at the top of the list, but we reduced it by more than 60% and the remaining penalties, fees and interest generally was charged properly to the correct party making the error (borrower, tax processing company, servicer, taxing jurisdiction). I’ll discuss what to look out for and how it impacts the waiver decision.
Add to your mortgage knowledge; pick up a copy of Winning Mortgage, Winning Home for 10 bucks, gift it to someone you know, and/or recommend it to friends who may need or want additional guidance. Find out more about escrows, insurance, taxes, PMI/MIP. Thanks for your support!