Escrow Requirements for High-Cost Loans?

Question

Hi everyone,

As part of a curriculum I'm developing, a required topic is "Requirements for an escrow account associated with a “high cost loan”. I'm able to find specific information on escrow requirements for higher-priced loans, but can't find anything about specific requirements for high-cost loans specifically, not even under Regulation Z 1026.32. Do high-cost loans have escrow requirements? Are the requirements the same as for higher-priced loans?

Thanks in advance.

Chris Mason · Answer

I don't do high cost loans, but I wouldn't be surprised if there were NOT any special requirements to have/maintain an escrow account.

Over the years I've gradually learned that these are mostly just lender specific requirements, though I at various points (and as an industry insider!) was told it was a "government" or "fannie mae" requirement. And if I as the consumer-facing LO was told that, and believed it, that means I've told it to consumers, and they will have believed it too. Back when I was first doing mortgages, when my forehead wasn't a fivehead and these gray hairs peppering my beard were red, they would also charge a rate/fee hit for not having an escrow account, and I was told it was a "regulatory fee," and believed that too. I was also told it was a state requirement if you didn't put 20% down, it was a freddie mac requirement if you didn't put 10% down, you get the idea.

For example, and some of those inside the mortgage industry reading this will be shocked/surprised, I have done VA loans with 0% down, without an escrow account!It's such a stupid little thing, no idea why the conspiracies to deceive abound. I just tell people "hey, you're putting a small down payment, so some lenders are going to require that they budget this for you and keep it in escrow, but it's not going to actually cost you anything, they don't charge fees for the service, and they aren't allowed to profit from it being in an interest bearing account" and I'd say 99% of consumers are 100% satisfied with that answer.

Note: I do believe it's a genuine requirement for all FHA loans. Happy to be proven wrong on that point.

Cameron Hoehne · Answer

Chris, this is illuminating, thank you! The requirements being more on the lender side would make sense of not being able to find any information on these requirements from government sources. Appreciate your insight into this.