Understanding How Escrow Works

What is escrow?

Escrow accounts are sometimes called impound accounts. An escrow account holds funds paid by the homeowner that will eventually pay certain property related expenses. This includes but is not limited to taxes and/or homeowners’ insurance premiums.

What bills does an escrow account pay?

ditech uses the funds from your escrow account to pay bills for your property. These bills may come due annually, semi-annually, or sometimes on another schedule. They could include payments to the following:
  • Private Mortgage Insurance
  • Insurance (Hazard, Fire, Flood)
  • City property taxes
  • County property taxes

How does a ditech escrow account work?

ditech performs an annual escrow analysis on applicable accounts. The escrow amount is added to the regular mortgage payment. ditech pays the various bills as they come due at any time during the year from the escrow account.

What are escrow accounts good for?

Escrow accounts are beneficial to both borrowers and lenders for several reasons:
  • Escrow accounts allow you to break down large annual expenses into manageable monthly payments.
  • Escrow accounts require lenders to be responsible for timely insurance and tax payments rather than you, the borrower.
Request to establish an escrow account with ditech

Does the escrow amount change from year to year?

Several things may affect the amount. Taxes can change, insurance premiums can change, and estimates can change. On an annual basis, ditech performs an escrow analysis of your account and will notify you of any deficiency, shortage, or surplus in your account. This Escrow Account Disclosure Statement shows all the details of your escrow account. Depending on the previous year’s estimate, you may have overpaid or underpaid escrow at the end of the year and appropriate adjustments are made to reflect the estimated escrow balance for the next 12 months. Learn more: How to Read your Escrow Account Statement

What happens if I underpay escrow?

If the escrow estimate was too low and there is an escrow shortage, ditech still pays the full amount due to the homeowner’s insurance or tax bill. The customer can choose one of two ways to handle an escrow shortage:
  1. ditech adjusts the the monthly escrow payments to cover the shortfall, or
  2. You pay the shortage in full by sending a check to the address shown on your billing statement.

What happens if I overpay escrow?

ditech corrects an overpayment in one of two ways, depending on the amount overpaid.
  1. If you overpaid your escrow by more than $50.00, ditech will reimburse the difference to you by mailing you a check.
  2. If the overpaid amount was less than $50.00, the escrow account retains the funds and holds them toward future payouts to taxes or insurance.

Why is there more money held in my escrow account than is needed for taxes and insurance?

Although ditech carefully analyzes each escrow account, we occasionally underestimate escrow, resulting in a shortfall. Another issue is that the due dates for ditech to pay out insurance and tax bills may not line up precisely with the regular escrow payments coming in. Either of these situations could overdraw an account. To prevent overdraft issues, federal regulations allow ditech to maintain an “escrow cushion” in your escrow account. The cushion amount must equal no more than one-sixth of the annual amount to be paid out of your escrow account. The escrow cushion ensures that your account will not be overdrawn and that ditech will have sufficient funds available to make required payments for you throughout the year. In certain cases, the cushion requirement may differ due to state regulations or investor guidelines, but it will never exceed one-sixth of the annual amount.

Can I cancel my escrow account?

If you want to cancel your ditech escrow account, we require a written request to protect your account and make sure you are fully informed. Send us a letter indicating that you would like ditech to review your escrow account (for taxes and/or insurance) for cancellation. Please make sure to include your signature on the request. ditech will then process your request, review your account, determine if your loan meets cancellation criteria, and inform you of the decision. For more information about how to submit a written homeowner request, visit the Contact Us page.
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