Inspect Your Impound Account for Overcharge : Financing: A survey of the ‘impound’ accounts found many lenders overestimate the amount of money that must go into the accounts on a monthly basis.
Some experts say you should take a closer look at how much you’re paying into your mortgage’s impound accounts, after government attorneys in California and several other states recently charged that many lenders are illegally holding billions of dollars of homeowners’ money in reserve.
If you made a down-payment smaller than 20% when you originally purchased your home, you probably have an impound or “escrow” account. Even if your down-payment was larger, you may have elected to set up such an account for convenience sake.
When you have an impound account, a portion of your monthly mortgage payment is put into a reserve to pay for such items as annual property-tax bills and fire-insurance premiums.
When the bills come due, the lender automatically taps the built-up reserves and pays the expenses for you.
California lenders are required to pay a paltry 2% annual interest on the accounts, even though they can sometimes have more than $1,000 of your money in them. Lenders in some other states don’t have to pay anything.
Late last month, California Atty. Gen. John K. Van de Kamp and his counterparts in six states charged that many lenders across the country are overestimating the amount of money that needs to go into the accounts on a monthly basis.
Under federal law, surplus impound-account payments must fall once a year to a level that doesn’t exceed the equivalent of one-sixth of a homeowner’s total yearly impound payments.
Lenders commonly call this the “two-month cushion,” meaning they can legally charge a borrower up to two months’ worth of impounds in advance.
Advance payments that have accrued can be tapped to pay the borrower’s bills if, for example, the homeowner defaults on the loan.
But the attorneys general claim that lenders are abusing the federal law that governs how impound accounts must be handled.
The officials estimated that two of every three homeowners nationwide are paying too much into their impound accounts. The average overpayment is $150, though the excess can be as much as $500 in high-tax states, such as California.
Joining Van de Kamp in the report were his counterparts in New York, Florida, Texas, Massachusetts, Minnesota and Iowa. More states may come on board soon.
“This is a conscious, concerted action taken by an entire industry to rip off the public and get free loans at its expense,” said Robert Abrams, New York attorney general.
The accusations are the result of a two-year study of impound accounts at four of the nation’s biggest lenders and a review of consumer complaints filed against other companies.
The lenders that were surveyed were Citibank in New York; GMAC Mortgage Corp., headquartered in Pennsylvania; Milwaukee-based Fleet Mortgage Corp. and Lomas Mortgage USA in Dallas.
The attorneys general called for stricter enforcement of federal rules that govern the accounts and want lenders who have overcharged borrowers to immediately issue credits or refunds.
Most lenders questioned the validity of the survey. They also pointed out that they’re allowed to retain more than a two-month cushion by using a special accounting method allowed by the U.S. Department of Housing and Urban Development.
Above all, bankers denied that they’re trying to cheat consumers.
“For these officials to imply that all mortgage lenders have these problems is certainly irresponsible and probably motivated by political reasons,” said Gary Anderson, chairman of Riverside-based Directors Mortgage Loan Corp.
“Our attorney general is running for governor, so maybe he thinks that making a big deal out of this will get him some more votes. But even if those four lenders really have serious problems, it’s wrong to paint the whole industry with the same broad brush,” Anderson said.
If you want to double-check the accuracy of your impound payments, you’ll need to know exactly what the impounds are for.
For example, if your only impound is for property taxes, you can look up your most recent tax bill and divide it by 12. The result should roughly match the impound amount listed on your most recent monthly mortgage statement.
It won’t be an exact match, in part because your property taxes likely will be raised toward the end of the year, and the lender has recalculated your impound payments to make sure it will have enough cash to pay the bill.
If you also make impound payments for insurance, you’ll need to fish out your policy and check your premiums. Add your annual premium to the amount of your tax bill, divide by 12, and you again have a ballpark idea of what your monthly impounds should be.
If there’s more than a $10 or so monthly discrepancy between your estimates and the amount charged by your lender, contact the institution and ask for an explanation.
Even if you’ve been paying too much into your impound account, it’s not necessarily the lender’s fault: It could be your own.
That’s because all lenders are required, at the start of each year, to send their borrowers a notice of how their impounds were spent the previous year and how much money they currently have in reserve.
“We might have an extra $200 or $300 in an impound account, and we’ll send a letter asking the borrower what he’d like us to do about it,” said Bruce Norman, executive vice president of First Mortgage Corp. in Diamond Bar. “The odd thing is, we rarely get any response back.
“So when you get that letter or statement in January, pay close attention to it. Don’t just throw it in the trash.”
