Annual escrow disbursements are $6,000 for taxes and $1,800 for insurance, giving a $650 monthly contribution. Closing is September 15; a $3,000 tax installment is due November 1. The servicer elects a two-month cushion, permitted by the loan documents and applicable law. Which method determines the initial deposit using aggregate accounting?
Correct Answer
C) Project all monthly inflows and disbursements, adjust the lowest monthly balance to zero, then add the selected cushion
C. Use the full aggregate projection rather than a single bill or the cushion alone. $7,800 / 12 = $650 monthly; the selected cushion is $1,300. The initial deposit also depends on payment and disbursement timing throughout the computation year. Scope and exceptions: The information does not specify every payment date, so an exact deposit cannot be calculated. The rule permits a smaller cushion or none; stricter legal or document limits control. Source: Section 1024.17(c)(1), (c)(8), (d)(1)–(2) — https://www.consumerfinance.gov/rules-policy/regulations/1024/17/
Why This Is the Correct Answer
C. Use the full aggregate projection rather than a single bill or the cushion alone. $7,800 / 12 = $650 monthly; the selected cushion is $1,300. The initial deposit also depends on payment and disbursement timing throughout the computation year. Scope and exceptions: The information does not specify every payment date, so an exact deposit cannot be calculated. The rule permits a smaller cushion or none; stricter legal or document limits control.
Why the Other Options Are Wrong
Option A: Collect nothing at closing, since the first payment funds the account
It assumes adequate funding without the projection.
Option B: Collect the full $3,000 tax installment at closing so November is covered
One tax installment does not establish the aggregate deposit.
Option D: Collect exactly 2 months at closing, which is the cushion, and no more
It confuses the cushion with total initial funding.
Exam Tip
Cushion and initial deposit are distinct figures.
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