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Escrow & MIP Charge

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Posted On: 01/09/2013

Question:

My FHA mortgage was transferred to a new lender with a zero escrow balance. Can my new lender charge me with the FHA mortgage insurance premium? Something is not right with this.

Answer:

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A mortgage escrow account is funded with money taken from each monthly loan payment. The purpose of the fund is to assure that cash is available to pay property taxes and property insurance.

Each month, the lender collects one-twelfth of the total cost for property taxes and insurance. When the bills come due, the lender pays from the escrow account. A lender can keep the total annual cost of taxes and insurance in the account, plus a reserve equal to two monthly payments plus 50 dollars. The additional funds are allowed in case the cost of taxes or insurance increases.

The FHA's annual mortgage insurance premium (MIP) is something different. It's money paid into a reserve fund to pay off lender claims if borrowers default. It is not property insurance. By financing with FHA, VA or private mortgage insurance (MI) you can purchase with less than 20 percent down.

When a loan is sold, federal rules say the new servicer "must provide the borrower with an initial escrow account statement within 60 days of the date of transfer." Thus, your escrow account might show a zero balance because taxes and insurance were just paid, the lender has closed the account and sent you a check or the new servicer has not yet developed an escrow account statement.

You receive an annual escrow statement showing account activity. Check the last report, then contact the new servicer and ask why the escrow account now shows a zero balance on the transfer notice.

Keep records of your conversation. If dissatisfied, ask the lender in writing for an escrow analysis showing how money in the account has been collected and spent since the last report.

Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to peter@ctwfeatures.com.

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