§ 1024.35(b)(4)

Section-by-section analysis


Proposed § 1024.35(b)(4) would have included as an error a servicer's failure to make disbursements from an escrow account for taxes, insurance premiums, or other charges, including charges that the borrower and servicer have voluntarily agreed that the servicer should collect and pay, as required by current § 1024.17(k) and proposed § 1024.34(a), or to refund an escrow account balance in a timely manner as required by proposed § 1024.34(b). The Bureau proposed § 1024.35(b)(4) to implement, in part, section 6(k)(1)(C) of RESPA with respect to borrower requests to correct errors relating to the allocation of payments for a borrower's account and other standard servicer duties.

In the normal course of business, servicers typically engage in collecting payments from borrowers to fund escrow accounts and disburse payments from escrow accounts to pay borrower obligations for taxes, insurance premiums, and other charges. Servicers typically undertake this obligation on behalf of investors because a borrower's maintenance of an escrow account reduces risk for investors that unpaid taxes may generate tax liens that are higher in priority than a lender's mortgage lien and that unpaid insurance may cause lapses in insurance coverage that present risk for investors in the event of a loss. Servicers are required to make disbursements from escrow accounts in a timely manner pursuant to section 6(g) of RESPA and are required to account for the funds credited to an escrow account pursuant to section 10 of RESPA. In addition, the proper disbursement of escrow funds is, by definition, servicing and, therefore, is currently subject to the qualified written request procedure set forth in section 6(e) of RESPA and current § 1024.21(e) of Regulation X. A credit union commenter agreed that proposed § 1024.35(b)(4) should constitute an error. For the reasons set forth above and in the proposal, the Bureau is adopting § 1024.35(b)(4) as proposed.