By Dustin R Burke, Adonai Financial

Reserves Deposited with the Lender is the section of the Good Faith Estimate that details the prepaid fees that are collected by the lender to pay at a later date and are typically called escrow items.  The GFE is a RESPA  required document.  The servicer (or the institution that collects the monthly mortgage payment) collects these items at closing and in your mortgage payment each month.  Escrow payments are usually required when a borrower has less than 20% equity in the property they have secured the loan.

The servicer typically collects 1/12 of the anticipated tax bill, insurance invoice, etc. and then places that amount into a separate account called an escrow account.  When the appropriate escrow bill is due the servicer will pay that cost from the funds available in the escrow account.

If there is not enough to pay the amount due there is an escrow deficiency.  When this happens the servicer will often pay the deficiency and then increase the escrow amounts to cover their expense and start saving again for the next escrow bill.

Common escrow fees are:

1001 - Hazard Insurance Premiums: are portions of the future hazard insurance expense.  Typically one full year is expected to be in force at the time of closing and is not collected by the servicer at the time of closing.  What is typically collected is an additional 2 - 3 months cushion that will be used to open the escrow account.

1002 - Mortgage Insurance Premium Reserves: are prepayments of future mortgage insurance expense.  The servicer typically collects only 2 - 3 months of premium at closing.

1003 - Real Estate / Property Taxes: are prorated prepayments of future real estate / property taxes.  The amount collected at closing often depends on when the next tax bill is due plus an additional 2 - 3 month cushion.  For example:  If the tax bill is due in 8 months the servicer will collect 4 months plus the extra cushion.  The remaining 8  months will be collected in the monthly mortgage payments.

As you can imagine, there more information than I can put here.  If you would like more information about fees on a GFE or items discussed in this section please send me an email to dustin.burke@adonaifinancial.com.

"Adonai Financial, your friends in the mortgage business!"

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Copyright © 2008 Dustin R Burke | All Rights Reserved

Portions Copyright © 2008 Adonai Financial Corporation | All Rights Reserved

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Adonai Financial Corporation

http://www.adonaifinancial.com/

---The content of this blog is my opinion---