Bank of America wants 16.6% Reserve in Escrow (pay, taxes, rate)
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Yes, I got my B of A mortgage statement today and they want a reserve in the escrow fund which I am fighting. I hate them anyway and have cancelled all my other accounts with them. Still have the mortgage which I wish I could cancel too.
But has anyone else negotiated this "reserve" with a bank so they don't require it? They never did with me until this year and the mortgage is 7 years old. I hear that if I just do my own escrowing and pay my own taxes and insurances, B o A will charge me a $400 fee !! What the ? How can they do this? I wish this bank would close its doors.
UPDATE: I contacted B of A and ranted and raved about the amount they wanted as reserve. Wonders never cease. I got an email today that they are taking that extra reserve OFF my mortgage payment. YES !!!
Escrowing taxes and insurance is very very common. Most banks operate exactly the same way. As long as you have a mortgage with them, they want to make sure the home is insured and the taxes are paid, so they require the escrow account, or charge a fee to allow you to do it yourself. Very very common.
As for the 16.6%, from what I understand, that is a federally mandated minimum. 16.6% equates to 2/12ths of the amount of your fees for the year. They take your taxes + insurance and divide by 12 to figure out how much to add to your mortgage payment each month for escrow, but they are required to do an annual audit, and to make sure that the MINIMUM that is in your escrow account at any time in a 12 month period never drops below the equivalent of 2/12ths (or 1/6th) of that amount. This is not only a totally normal practice, I thought it was federal law.
I have no idea how you got them to waive the minimum, or how "they never did this with me until this year". My guess is that your taxes/insurance went up, and so while you did have a reserve in prior years (and just didn't realize it), the reserve is now short, so your payment is going up. The only way I can think of that they would take that reserve increase off your payment would be if you send them a lump sum check for the difference. So while you think you have it figured out, I wouldn't be surprised if a bill shows up in the mail.
My payment has varied by about $25 over the 8 years I have owned my home, for exactly this reason. Most people's do vary some.
*Edit* ok, I looked it up and it is covered by the Real Estate Settlement Procedures Act (RESPA), and it does not, in and of itself, require a minimum be kept, but it does allow lenders to require a minimum be kept, and caps that minimum at 1/6th.
So I was wrong that it is a federally mandated minimum, but that doesn't change the fact that it is a totally normal, customary, and legal requirement, and every bank I am familiar with that does mortgages does require it.
I realize this thread is a year old, but wanted to add that, though Bank of America will remove the reserve amount from your monthly payment at your request, you may the end up with a bill if your property taxes or homeowner's insurance go up (and they will), and the required escrow is not enough. They also tack on a monthly "shortage" or "surplus" amount, another insurer that the bank will get its money.
It's very tempting to take the reserve out and lower your monthly mortgage payment, just be careful to keep your own reserve.
If I could pay taxes and insurance on my own I certainly would, but my mortgage loan with Bank of America does not offer that option. If I could ditch Bank of America I would, too!
If I could pay taxes and insurance on my own I certainly would, but my mortgage loan with Bank of America does not offer that option. If I could ditch Bank of America I would, too!
If that is a condition of the loan, and if you do not like that condition....
why bother dealing with them in the first place?
You should have got the loan elsewhere.
This year-old issue has probably been resolved by now, but, there is another side to almost every story. Those 'mean old banks' who 'forced' people to sign-up for all those mortgages, are now sitting on a pile of upside-down loans that people are simply not paying or 'walking away' from. One can hardly blame the banks for wanting some assurance that the properties representing the security for those loans ... is at least insured and that taxes are paid.
That is why the tax/insurance escrow provision is almost always included as part of the mortgage (and was most likely included in yours!). Occasionally, when taxes or insurance rates increase, banks also increase the escrow amount. (Your claim that you have been escrowing your own taxes/ insurance, instead of paying them as part of your mortgage, sounds like either a major oversight on their part ... or a reflection of a very strong equity position represented by your property.)
In any case, the cost of taxes and insurance is not increased by escrow and is really nothing more than a responsible owner (who is actually maintaining their own tax/insurance escrow) would be putting away anyway. Those of us who own our properties must personally escrow or have a reserve to pay these same costs. If, however, one is really concerned about the monthly cost of added taxes and insurance ... and is not regularly putting that money away on their own (hoping, perhaps, that the money will magically appear when the bills are due) ... they are probably the people who most NEED an disciplined, automated escrow account.
In your loan documents you should have read where it said they are requiring you have an open escrow account for this practice, your loan officer should have told you that. But all they really care about is getting paid so they probably just sent you to the title company or had a notary have you sign a bunch of papers who would just a say sign here and tell you to ask your loan officer if you had any questions. If you have a Bank of America loan consider yourself lucky in one respect, they are more stringent on there loans and you probably have a better rate than you would have gotten else where, so you are saving money there. As far as what jghorton said about the mean old banks sitting on top of upside down loans they write it off the loses on their taxes and still make a profit every quarter. And it is not the original BofA borrowers who are defaulting because BofA does not take bad credit risks it was the loans BofA acquired from countrywide that has put BofA in the trouble it is in along with its poor customer service.
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