B-242179, Feb 4, 1991, Office of General Counsel

B-242179: Feb 4, 1991

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Additional funds in a single item account do not constitute an excess cushion because the larger amount held is directly attributable to larger deposit properly collected at settlement. Insurance and other charges related to the property which is security for the loan. The report discusses "single item analysis" and argues that it violates section 10 by holding more funds than are statutorily permitted as a "cushion" in the account. We have concluded that the practice of "single item analysis" is not prohibited under the provisions of section 10. Our reasoning is explained in detail in an attachment to this letter. We trust our response will be useful. This opinion will be publicly available 30 days from its date.

B-242179, Feb 4, 1991, Office of General Counsel

MISCELLANEOUS TOPICS - Housing/Community - Development - Mortgages - Escrow - Computation - Statutory restrictions DIGEST: Practice of single item analysis of escrow accounts held by mortgage lenders to pay taxes, insurance and other charges on federally related residential mortgages, does not violate section 10 of Real Estate Settlement Procedures Act of 1974, as amended (12 U.S.C. Sec. 2609). Although single item accounts normally maintain a continuous positive balance throughout the year, they do not exceed either statutorily allowed monthly payment or maximum amount permitted to be collected as deposit at settlement. Statute allows for lender to hold a "cushion" equal to two months payment to the account, however, additional funds in a single item account do not constitute an excess cushion because the larger amount held is directly attributable to larger deposit properly collected at settlement, and retained because of permissible method of account computation. GAO makes no recommendation whether single item computation should be abolished by statute, however, HUD should clarify its position on the validity of single item analysis in pending regulations.

The Honorable Henry Gonzalez

House of Representatives:

Your letter of November 1, 1990, requested our opinion on whether the escrow computation practice of "single item analysis" violates section 10 of the Real Estate Settlement Procedures Act of 1974, as amended (RESPA). Section 10 limits the amount a borrower may be required to deposit in escrow with a mortgage lender for the timely payment of taxes, insurance and other charges related to the property which is security for the loan.

In April of last year, the Attorneys General of seven states issued a joint report critical of many lenders' escrow practices. Specifically, the report discusses "single item analysis" and argues that it violates section 10 by holding more funds than are statutorily permitted as a "cushion" in the account.

After reviewing the statute, its legislative history and all other pertinent materials, we have concluded that the practice of "single item analysis" is not prohibited under the provisions of section 10. Our reasoning is explained in detail in an attachment to this letter. However, we agree with the Attorneys General that the Department of Housing and Urban Development (HUD) should clarify its position on the validity of single item computation in regulations.

We trust our response will be useful. In accordance with our usual procedures, this opinion will be publicly available 30 days from its date.