A team member asks about Escrow Requirements in a compliance desk review while trying to choose the compliant next step. Which response should the supervisor use?
Correct Answer
D) Check HPML escrow requirements when applicable
Why this is correct: The original explanation states escrow rules address taxes, insurance, cushion limits, statements, and HPML escrow duties. The governing concept is that for certain loans, especially High-Priced Mortgage Loans (HPMLs), mandatory escrow requirements may apply. Therefore, in a compliance review, the supervisor must first determine if HPML escrow requirements are triggered by the loan's terms. Why the other choices are wrong: "Change the payment without reviewing escrow-account figures" is wrong because escrow payments must be based on a proper analysis of taxes and insurance. "Use borrower preference instead of escrow-analysis requirements" is wrong because escrow rules are often mandatory (e.g., for HPMLs) and not subject to borrower waiver. "Wait for a regulator request before correcting the escrow treatment" is wrong because compliance requires proactive correction, not waiting for a regulator to find the error. Exam tip: For escrow questions, remember HPML triggers: for first-lien mortgages, an APR exceeding the Average Prime Offer Rate by 1.5% (2.5% for jumbo) may require escrow.
Why This Is the Correct Answer
The correct response is "Check HPML escrow requirements when applicable" because Escrow rules address taxes, insurance, cushion limits, statements, and HPML escrow duties.
Why the Other Options Are Wrong
Option A: Change the payment without reviewing escrow-account figures.
Change the payment without reviewing escrow-account figures. is not correct because it does not apply the rule tested by this file scenario.
Option B: Use borrower preference instead of escrow-analysis requirements.
Use borrower preference instead of escrow-analysis requirements. is not correct because it does not apply the rule tested by this file scenario.
Option C: Wait for a regulator request before correcting the escrow treatment.
Wait for a regulator request before correcting the escrow treatment. is not correct because it does not apply the rule tested by this file scenario.
Memory Technique
escrow-account analysis and shortage treatment: identify the rule being tested, then choose the action that documents or applies that rule before the file moves forward.
Exam Tip
Match the file facts to escrow-account analysis and shortage treatment; do not choose an exception or shortcut that skips the required rule.
Common Mistakes to Avoid
- -Choosing an internal exception instead of the governing rule
- -Treating preliminary or informal facts as a substitute for required documentation
- -Answering from a familiar but unrelated mortgage topic
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