What is an escrow analysis? The servicer's once-a-year review of a mortgage escrow account, which resets the tax and insurance part of the monthly payment and finds any shortage or surplus.
An escrow analysis is the annual review a mortgage servicer runs on the escrow account attached to a loan. Federal rule requires it: RESPA's Regulation X, at 12 CFR 1024.17, tells the servicer to compare what it actually paid out of the account over the past twelve months against what it collected, project the property tax and homeowners insurance bills for the coming twelve, and set the monthly escrow payment from that projection. It arrives as a statement, usually in the same month each year, and the new payment starts a month or two later.
The arithmetic is short. Projected disbursements divided by twelve is the base monthly escrow. On top of it the servicer may hold a cushion of up to two months of those payments, the one sixth of annual disbursements the rule allows and the maximum most loan documents take. The analysis then compares what the balance is projected to fall to at its lowest point in the coming year against what it is allowed to hold at that point. Under is a shortage, over is a surplus, and a surplus of $50 or more is refunded within thirty days when the account is current.
The interest rate does not move and the principal and interest portion does not move, which is why an escrow analysis surprises people: a fixed rate payment changed anyway. Here the usual reason is the county resetting a home's taxable value to what it just sold for, so the first full year of taxes is larger than the year the escrow was set up on. The statement lists the disbursements it projected, and those are the figures to check against the Clark County Treasurer's bill and the insurance renewal.
A worked example
A loan closes with taxes of $3,600 a year and insurance of $1,500, so escrow collects $425 a month. The county resets the taxable value to the sale price and the next bill is $4,800. The analysis projects $6,300 of disbursements, resets the base escrow to $525, and finds the account $700 short. Spread over twelve months, the payment rises by $100 for the new base plus about $58 for the shortage, roughly $158 in all.
Why a fixed mortgage payment goes up
Questions people ask
How often does an escrow analysis happen?
At least once every twelve months by federal rule, and a servicer may run one sooner after a large change such as a new tax bill or an insurance renewal. The statement has to reach the borrower within thirty days of the analysis being completed.
Can you dispute an escrow analysis?
You can ask the servicer to rerun it. The route is a written request with the corrected document attached, and it comes up most often when a successful assessment appeal lowers the tax bill after the projection was made. The servicer recalculates from the documents it holds.