A borrower's escrow account shows a $300 surplus at the annual analysis. The projected escrow payments for the upcoming year total $4,800. What is the maximum cushion the servicer can maintain?
Correct Answer
C) $800 (two months of escrow payments)
Under RESPA, the maximum cushion is 1/6 of the total annual disbursements or two months of escrow payments, whichever is greater. With annual disbursements of $4,800, monthly escrow payments are $400, so two months equals $800. This exceeds 1/6 of $4,800 ($800), so $800 is the maximum allowable cushion.
Why This Is the Correct Answer
Under RESPA, the maximum cushion is 1/6 of the total annual disbursements or two months of escrow payments, whichever is greater. With annual disbursements of $4,800, monthly escrow payments are $400, so two months equals $800. This exceeds 1/6 of $4,800 ($800), so $800 is the maximum allowable cushion.
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