An MLO is reviewing a loan file where the borrower pays property taxes semi-annually but homeowners insurance annually. The escrow analysis projects a $1,200 shortage due to timing differences. What is the most likely cause?
Correct Answer
B) Failure to account for payment timing in cash flow projections
When escrow items have different payment schedules (semi-annual taxes vs. annual insurance), proper escrow analysis must account for timing differences in cash flow. If the analysis doesn't properly project when large disbursements occur relative to monthly collections, shortages can develop even with adequate annual funding.
Why This Is the Correct Answer
When escrow items have different payment schedules (semi-annual taxes vs. annual insurance), proper escrow analysis must account for timing differences in cash flow. If the analysis doesn't properly project when large disbursements occur relative to monthly collections, shortages can develop even with adequate annual funding.
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