8812 Federal Register / Vol. 60, No. 31 / Wednesday, February 15, 1995 / Rules and Regulations

DEPARTMENT OF HOUSING AND

URBAN DEVELOPMENT

Office of the Assistant Secretary for

Housing-Federal Housing

Commissioner

24 CFR Part 3500

[Docket No. R–95–1688; FR–3255–F–05]

RIN 2502–AF77

Real Estate Settlement Procedures Act

(Regulation X); Escrow Accounting

Procedures

AGENCY: Office of the Assistant

Secretary for Housing-Federal Housing

Commissioner, HUD.

ACTION: Final rule.

SUMMARY: On October 26, 1994, HUD

published a rule, to become effective on

April 24, 1995, establishing escrow

accounting procedures under Sections

6(g) and 10 of the Real Estate Settlement

Procedures Act. Subsequent to the

publication of that rule, HUD received

a number of requests asking HUD to

correct, clarify, or further illustrate

matters contained in the final rule.

Because the Department agrees that

further action may help illuminate its

intentions and avoid confusion on the

part of persons responsible for

complying with the requirements of the

October 26 rule, the Department is

issuing this subsequent final rule. This

rule responds to inquiries concerning

the applicability of the October 26 rule

and, as was the October 26 rule, is based

on policy decisions made while

reconsidering the proposed rule

published on this subject earlier and the

public comments received in

connection with the proposed rule.

Both this rule and the October 26 rule

will be effective on the same date,

which is delayed by 1 month from the

effective date originally announced in

the October 26 rule. Where applicable,

the provisions and appendices in this

rule will supersede the provisions and

appendices in the October 26 rule. As

part of these corrections, clarifications,

and further illustrations, HUD is

reissuing Appendices G, H, I, and J in

their entirety, and is adding Appendices

K, L, M, and N, which provide

additional examples or information.

EFFECTIVE DATE: The final rule is

effective May 24, 1995, and the effective

date of the final rule published at 59 FR

53890, is delayed until May 24, 1995.

FOR FURTHER INFORMATION CONTACT:

William Reid, Research Economist,

Office of Policy Development and

Research, Room 8212, telephone (202)

708–0421. For legal questions: Grant E.

Mitchell, Senior Attorney for RESPA,

Room 9262, telephone (202) 708–1552;

or Kenneth A. Markison, Assistant

General Counsel for GovernmentSponsored Enterprises/RESPA, Room

9262, telephone (202) 708–3137. The

address for all of these contact persons

is: Department of Housing and Urban

Development, 451 Seventh Street, SW.,

Washington, DC 20410–0500. The TDD

number is (202) 708–4594. (These are

not toll-free numbers.)

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act Statement

The information collection

requirements contained in this rule have

been approved by the Office of

Management and Budget (OMB), under

section 3504(h) of the Paperwork

Reduction Act of 1980 (44 U.S.C. 3501–

3520), and assigned OMB control

number 2502–0501.

Justification for Final Rulemaking

In general, the Department publishes

a rule for public comment before issuing

a rule for effect, in accordance with its

own regulations on rulemaking, 24 CFR

part 10. However, part 10 does provide

for exceptions from that general rule

where the agency finds good cause to

omit advance notice and public

participation. The good cause

requirement is satisfied when prior

public procedure is ‘‘impracticable,

unnecessary, or contrary to the public

interest.’’ (24 CFR 10.1) The Department

finds that good cause exists to publish

this rule for effect without first

soliciting separate public comment, in

that any changes in the existing

requirements made by this final rule

evolve from the proposed rule

published on December 3, 1993 (58 FR

64065). Prior public procedure is

unnecessary with respect to the

corrections, clarifications, and

information contained in this rule and

its preamble because the corrections,

clarifications, and information do not

impose additional requirements, but are

merely explanatory in nature or correct

certain technical requirements of the

October 26, 1994, rule to make it easier

to comply with the substance of the

rule. This rule is being issued in

response to requests for such

corrections, clarifications, and

information, and, therefore, delaying its

issuance would also be contrary to the

public interest. Immediate issuance of

this rule will ease the regulatory

compliance burden of persons subject to

the October 26, 1994, rule (59 FR 53890)

(October 26 rule) and will eliminate the

possibility of having to make

intermediate changes in business

practices, required by that rule, pending

the completion of notice-and-comment

procedures for this rule. As has been

urged by some persons subject to the

requirements of the October 26 rule, the

Department is issuing this subsequent

rule with the belief that it will make

timely compliance with the October 26

rule easier. In order to facilitate

compliance further, the Department also

is delaying the effective date of the

escrow accounting requirements by 1

month from the effective date

announced in the October 26 rule.

Background

On October 26, 1994 (59 FR 53890),

the Department published a final rule

establishing escrow accounting

procedures under Sections 6(g) and 10

of the Real Estate Settlement Procedures

Act of 1974 (RESPA; see 12 U.S.C.

2605(g) and 2609). In response to a

number of requests from mortgage

servicing industry spokespersons,

including those in the form and

computer software businesses, asking

for corrections, clarifications, or further

illustration of matters contained in the

final rule, in this document the

Department is setting forth clarifications

and technical corrections of the October

26 final rule. Following publication of

the final rule, the Department also

received requests for extension of the

April 24, 1995, effective date of the rule.

The Department has concluded that

today’s corrections and clarifications,

coupled with the original rule, provide

sufficient information to allow the

industry to implement the rule by May

24, 1995, which is 1 month later than

the effective date originally announced

for the October 26 rule. In addition, the

Department anticipates publishing soon

a Mortgagee Letter containing

instructions regarding the RESPA

escrow rule and the FHA single family

program.

Clarifications of Final Rule

Clarifications of the final rule that do

not require modifications of the

language in the rule are set out in the

following paragraphs of this document.

When appropriate for ease in

referencing the final rule, the

clarification references in brackets the

page number of the relevant provision of

the rule as published in the October 26,

1994, Federal Register.

(a.) May dollar amounts under this

rule be rounded?

Answer: Yes, any dollar amount

referenced in this rule may be rounded

up or down to the nearest dollar.

(b.) What impact does the escrow

accounting rule have on the Good Faith
Federal Register / Vol. 60, No. 31 / Wednesday, February 15, 1995 / Rules and Regulations 8813

Estimate requirement under § 3500.7 of

the RESPA rules?

Answer: Good Faith Estimates are set

forth in dollar amounts or ranges. The

Good Faith Estimate range or number

for reserves (the 1000 series on the

HUD–1 or HUD–1A) will generally be

lower than before the effective date of

the rule, because of the requirements of

the escrow accounting rule to use

aggregate accounting. During the phasein period, § 3500.8(c) (as added by the

October 26 final rule, 59 FR at 53901)

servicers are allowed, as an alternative

to the use of aggregate analysis, to use

single-item analysis with a maximum 1-

month cushion amount at closing. The

use of single item analysis with a

maximum 1-month cushion for

establishing a range for Good Faith

Estimate purposes is acceptable until

October 27, 1997. See Appendix N, for

an example of these alternatives on a

HUD–1.

(c.) Is an assumption of an existing

loan by a new purchaser which is

covered by RESPA under § 3500.2 a new

loan for purposes of this rule, even if the

existing escrow account is assigned to

the new purchaser?

Answer: Yes.

(d.) [Page 53902, § 3500.17(b),

Definitions, ‘‘Escrow account item’’.]

Are certain payments that may enter

and leave the account within the same

month, such as FHA monthly

premiums, private mortgage insurance,

or credit life insurance, considered to be

escrow account items?

Answer: Yes. All items in the account

are included so that the projected low

monthly balance is zero (-0-) at the end

of Step 2 in the Appendix I examples.

The chosen cushion may be no more

than the lesser of 2 months or the

number of months allowed in the loan

documents, multiplied by 1⁄12 the sum

of the estimated disbursements for the

items that may be included in the

cushion.

Note: State laws or Federal program

requirements may prohibit cushioning for

certain of these payments.

(e.) [Page 53902, § 3500.17(b),

Definitions, ‘‘Phase-in period’’.] Is the

switch to aggregate accounting for

existing accounts, and the use of the

alternate method for calculating escrow

account requirements at settlement, the

only requirements that are allowed a 3-

year phase-in period under the rule?

Answer: Yes.

(f.) [Page 53903, § 3500.17(c).] Do

surpluses generated by voluntary

borrower prepayments before the due

date (frequently of principal, interest,

and escrow account amounts) constitute

a violation of the escrow account limits

if they remain in the account in the next

escrow account computation year?

Answer: No. The escrow account

portions of any voluntary prepayment

by a borrower should be treated as an

accrual for the upcoming escrow

account computation year, and not

counted for the purpose of determining

whether a surplus is to be credited or

returned. In these circumstances,

shortage or surplus adjustments to

monthly escrow account payments for

the succeeding escrow account

computation year may, at the servicer’s

option, be spread over the period

remaining in the escrow account

computation year after the prepayment

accrual period. This precept also applies

for other unusual accumulations in the

escrow account; e.g., loss drafts for

property damage, or continuing

accumulation because new construction

is not assessed for more than a year after

completion, but the tax charges are

billed retroactively.

(g.) [Page 53903, § 3500.17(c)(1)(i),

and page 53904, § 3500.17(c)(7).] In the

case where an account is being

established for a new borrower, is the

servicer bound by the charges the

previous owner paid regarding the

subject property, particularly where

taxes or other charges may have been

held down because of the seller’s status

or tax laws relating to ownership?

Answer: No. In creating a new escrow

account, the servicer should estimate

disbursement amounts using its best

judgment with information known or

readily available.

(h.) [Page 53903, § 3500.17(c)(2) and

(3).] May a servicer choose a

disbursement date earlier than the date

due for a disbursement, for example, to

give the borrower the advantage of a

current year tax deduction, even though

the payment is due in the next calendar

year?

Answer: Yes, the rule states that the

servicer shall use as the disbursement

date for the escrow item a date on or

before the earlier of either a deadline to

take advantage of discounts, if available,

or the deadline to avoid a penalty. There

is no conflict with the statement in the

background information (page 53893,

third column, first full sentence):

‘‘Unless there is a discount to the

borrower for early payments, the

regulation does not allow servicers to

pay installment payments on an annual

or other prepayment basis.’’ This

statement dealt with a practice,

previously engaged in by some

servicers, of collecting and paying a fullyear’s taxes in advance, although they

were billed on an installment basis.

(i.) [Page 53904, § 3500.17(c)(7).] How

does a servicer compute the Consumer

Price Index (CPI) adjustment factor to

estimate disbursements?

Answer: This factor is the ratio of the

monthly CPI for all urban consumers, all

items, reported most recently, to the

same monthly CPI reported 12 months

earlier; i.e.:

most recent monthly CPI

monthly CPI for same 

month 12 months earlier

The adjustment is made by

multiplying last year’s disbursement by

this ratio. For example, if last year’s

school tax bill was $827, the value of

the most recent CPI (September 1994)

was 149.4, and the value of the CPI in

September 1993 was 145.1, then the

school tax projection using this

technique may not exceed $851.51:

$827 .4

. × = $851. 1491451

51

The two CPI numbers must have the

same base period and must either both

be seasonably adjusted or both be not

seasonably adjusted.

(j.) [Page 53905, § 3500.17(e).] For

what period of time is the transferor

(old) servicer or transferee (new)

servicer responsible for delivering an

account history or projection in the case

of a transfer of mortgage servicing?

Answer: Each servicer is generally

responsible for providing data for the

period for which it services the loan.

The transferor (old) servicer is

responsible for providing a short-year

annual statement (but not a projection)

for the portion of the year it controlled

the servicing. (Also see ‘‘short year’’

statement discussion in paragraph (r),

below.) If the transferee servicer

provides an initial escrow account

statement, the transferee servicer uses

the effective date of the transfer of

servicing to establish a new escrow

account computation year. The

transferee servicer may also retain the

payment schedule and accounting

method of the previous servicer and not

provide an initial escrow account

statement after transfer.

(k.) [Page 53905, § 3500.17(f).] May a

servicer return surplus funds by wire

transfer, rather than by a check?

Answer: Yes. The rule does not

specify the manner in which refunds are

to be paid.

(l.) [Page 53905, § 3500.17(f).] How

does the servicer show the collection of

a deficiency and a remaining shortage in

the same account?

Answer: The servicer first computes

the deficiency and then computes the

remaining shortage, and informs the

borrower accordingly, based on the

format in Appendix I. That format
8814 Federal Register / Vol. 60, No. 31 / Wednesday, February 15, 1995 / Rules and Regulations

allows for explanatory language in the

event of both a deficiency and a

remaining shortage.

(m.) [Page 53905, § 3500.17(f)(2).] May

a servicer give the borrower an option

to credit a refundable surplus directly to

principal, rather than refund the surplus

to the borrower?

Answer: No. However, the servicer

may inform the borrower in the

information accompanying the return of

the surplus that the borrower may also

choose to use the refund to credit

principal or the escrow account.

(n.) [Page 53906, § 3500.17(g)(1)(i).]

The rule indicates that the trial running

balance is required to be submitted for

an initial escrow account statement. Is

it also required to be submitted for

subsequent years as part of the annual

statement projections?

Answer: The reference cited in

§ 3500.17(g)(1)(i) means that the

information from the trial running

balance is to be included in the initial

escrow account statement. Similarly, the

information from a trial running balance

is included as the projections in the

annual statement after the first escrow

account computation year. There is no

requirement for duplication of the same

information.

(o.) [Page 53906, §§ 3500.17(h)(3) and

(i)(l)]. If a particular payee collects

payments on behalf of several taxing or

other entities, how much information

identifying these subpayees is

necessary?

Answer: The minimum amount of

information to be disclosed is that

which describes the payee to whom the

servicer delivers the funds. The servicer

may, but is not required to, identify the

subpayees on the account. If there are

several payees for similar categories of

items, such as taxes or insurance, there

should be sufficient differentiation to

identify the use of funds (see last

sentence of § 3500.17(h)(3) for

examples).

(p.) [Page 53906, § 3500.17(i)(1).] Does

the servicer have to highlight a change

in the monthly mortgage payments

during the year caused by such factors

as an adjustable rate mortgage (ARM)

readjustment?

Answer: This rule does not require

that such a change be specifically

highlighted after an annual statement

has been delivered. Language is

provided in Appendix I to alert the

borrower that principal or interest may

change during the escrow account

computation year under certain loan

programs, such as ARMs. The borrower

should receive notice of an ARM change

prior to the change. The next annual

statement history will note the change

in principal and interest.

(q.) [Page 53906, § 3500.17(i)(4).] If the

servicer determines that new escrow

items should be added to the account,

what further activities are required of

the servicer?

Answer: If the servicer is going to

change the payment amount, then the

servicer should reanalyze the account to

include the new items and issue a shortyear annual statement, with a new

projection for a new escrow account

computation year. If there is no payment

change, there is no activity required of

the servicer.

(r.) [§ 3500.17(i)(4)]. Please explain in

more detail when and how short-year

statements are used under this rule.

Answer: Short-year statements must

include all the elements normally

provided in an annual statement, with

the clarifications noted below. These

elements consist of a history of the

account since the last annual statement,

a copy of the projections issued with the

last annual statement, and projections

for the next 12 months. The following

principles are followed in developing

short-year statements:

(1.) The servicer that prepared the

projections issued with the last annual

statement must provide to the borrower

another copy, with all 12 months of

those projections, at the time the

servicer’s components of the short-year

statement are provided.

(2.) The servicer that prepared the

projections issued with the last annual

statement will report history, with

asterisks, from the time of the last

analysis to the time of the short-year

statement.

(3.) Upon transfer, payoff, or maturity,

the paragraphs beginning with ‘‘Last

year we * * *’’ and ‘‘Your actual lowest

* * *’’ on the account history are not

required. Otherwise, if the account will

be ongoing with the same servicer, these

paragraphs are required only if the

projected lowest monthly balance was

in the period covered by the history.

(4.) Upon transfer, the new servicer

must issue a short-year statement at the

time of transfer only if the monthly

escrow payment or accounting method

changes. Otherwise, the servicer may

wait until up to the end of the regular

yearly cycle to issue an annual

statement. The transferor (old) servicer

shall submit a short-year statement to

the borrower within 60 days of the

transfer.

(5.) With a transfer, the account

history issued by the new servicer must

report the transferred balance along

with the history for the period since the

transfer. Asterisks, inclusion of a copy

of the projections issued with the last

annual statement, and the paragraphs

beginning with ‘‘Last year we * * *’’

and ‘‘Your actual lowest * * *’’ on the

account history are not required of the

new servicer.

(6.) A projection for the next 12

months is not required upon maturity or

payoff. Upon transfer, the old servicer is

not required to produce a projection for

the next 12 months. The new servicer

issues a projection for the next 12

months when it does its analysis. For

the new servicer this must occur at the

time of transfer if the monthly payment

or the accounting method changes.

Otherwise, the new servicer has until

the end of the regular 12-month cycle to

perform the analysis, including the

projection for the next 12 months.

With two exceptions, servicers must

always project the account forward for

a period of 12 months to determine

monthly payments and the existence of

surpluses, shortages, and deficiencies.

The term ‘‘short-year’’ refers to the time

since the last annual statement, not the

period to be covered by the old or new

projections.

The first exception is for mortgages

scheduled to terminate within the next

12 months, when projections of less

than 12 months are permissible. The

second exception is for escrow accounts

covering items, such as flood insurance,

that have disbursements less frequently

than every 12 months. In this case,

projections longer than 12 months are

required. In the latter case, servicers

may opt to report only the first 12

months of a projection covering a longer

period.

(s.) [Appendix K] How is the annual

statement projection prepared when the

loan is scheduled to mature within the

upcoming escrow account computation

year?

Answer: The account may be analyzed

and payments collected as if the account

would be in existence for a full

computation year. Alternatively, the

account may be analyzed and payments

collected and disbursed as if the

account were terminating on the date of

maturity. In either event, any balances

are returned to the borrower following

maturity of the loan. The judgment of

the servicer as to which method to use

may be based on the length of time the

account will be open and the size of

payments to be made within that period.

The short-year statement after payoff

should be furnished consistent with

§ 3500.17(i)(4)(iii).

(t.) During the first year of operation

of the rule (i.e. May 24, 1995, through

May 23, 1996), certain information may

not be available, such as the previous

year’s projection or history. Is a servicer

required to reconstruct or hypothesize

about such documents?
Federal Register / Vol. 60, No. 31 / Wednesday, February 15, 1995 / Rules and Regulations 8815

Answer: No. If no projection or history

has been prepared or the records are not

in a readily retrievable form, neither

document is required to be submitted

during the first year’s operation. The

Appendix I format allows for the

reference to such documents to be

deleted.

(u.) Is the annual charge for mortgage

insurance under FHA’s Title I property

improvement program covered by this

rule if the lender collects the charge in

monthly installments?

Answer: HUD is considering either

exempting such fee from coverage of

this rule or otherwise clarifying

coverage. Title I lenders need not treat

the periodic collection of this fee as

triggering a requirement to comply with

this rule, pending the issuance of such

clarification.

Technical Corrections With Changes in

Rule Language

Technical corrections made in this

document are for the purposes of:

(1) Providing language that is

consistent with Appendix F. The

language provides that the initial

computation of an escrow account is to

be based on an analysis yielding a

lowest month-end balance of zero (-0-)

at some time during the year, before the

addition of the cushion;

(2) Conforming the language for

servicer handling of shortages of less

than 1-month’s escrow deposit with the

language for ‘‘deficiencies’’, allowing

servicers to require payments within 30

days;

(3) Clarifying that the servicer must

allow the borrower to repay in a period

of 12 months or longer a shortage equal

to or greater than 1 month’s escrow

deposit;

(4) Clarifying that the servicer may

require the borrower to repay in any

period of 2 months or more a deficiency

equal to or greater than 1 month’s

escrow deposit;

(5) Conforming the shortage and

deficiency requirements by substituting

the word ‘‘require’’ rather than ‘‘allow’’

in a 1-month deficiency situation;

(6) Permitting the servicer to assume

that payments and disbursements for

the final 2 months of an escrow account

computation year will be made as

estimated, thereby allowing the annual

account history and projections to be

produced in a timely manner;

(7) Including a reference to the

information in Appendix I that allows

the servicer to identify, using asterisks

(*), the items for which there are

differences between estimated and

actual amounts or payment dates in the

most recent account history and the last

year’s projection, thereby aiding

computer-generated statements that give

an indication about why a low point

was not reached;

(8) Specifying a time period (90 days)

in which a servicer must produce an

annual statement, if production of the

statement otherwise required was

deferred because the loan was in

default, foreclosure, or bankruptcy.

‘‘Bankruptcy’’ is added as another

circumstance in which the statement

need not be produced;

(9) Correcting a month reference in

Example I, Step 3, of Appendix F from

‘‘Jul’’ to ‘‘Jun’’, and correcting an error

in the column headings in Example II,

Step 1, of Appendix F; and

(10) Clarifying the instructions

regarding aggregate accounting

adjustments at settlement.

Other Matters

Environmental Impact

In accordance with 40 CFR 1508.4 of

the regulations of the Council on

Environmental Quality and 24 CFR

50.20 of the HUD regulations, the

policies and procedures contained in

this rule do not affect a physical

structure or property and relate only to

statutorily required accounting and

reporting procedures, and, therefore, are

categorically excluded from the

requirements of the National

Environmental Policy Act.

Executive Order 12866

This rule was reviewed by the Office

of Management and Budget under

Executive Order 12866, Regulatory

Planning and Review. Any changes

made to the rule as a result of that

review are clearly identified in the

docket file, which is available for public

inspection in the office of the

Department’s Rules Docket Clerk, Room

10276, 451 Seventh Street, S.W.,

Washington, DC 20410–0500.

Regulatory Flexibility Act

The Secretary, in accordance with the

Regulatory Flexibility Act (5 U.S.C.

605(b)), has reviewed this rule before

publication and by approving it certifies

that this rule would not have a

significant economic impact on a

substantial number of small entities.

The rule is in the nature of minor

changes and clarifications of an earlier

rule (59 FR 53890, October 26, 1994),

which was directed toward the

accounting procedures used in the

mortgage servicing industry and the

disclosure to consumers of related

information.

Executive Order 12612, Federalism

The General Counsel, as the

Designated Official under section 6(a) of

Executive Order 12612, Federalism, has

determined that the policies contained

in this rule do not have substantial

direct effects on States or their political

subdivisions, or the relationship

between the Federal government and

the States, or on the distribution of

power and responsibilities among the

various levels of government. As a

result, the rule is not subject to review

under the Order. The rule clarifies and

makes minor changes in a previous rule

(59 FR 53890, October 26, 1994) setting

out requirements concerning the

accounting procedures used in the

mortgage servicing industry and the

disclosure to consumers of related

information.

Executive Order 12606, the Family

The General Counsel, as the

Designated Official under Executive

Order 12606, The Family, has

determined that this rule does not have

the potential for significant impact on

family formation, maintenance, and

general well-being, and, thus, is not

subject to review under the Order. No

significant change in existing HUD

policies or programs will result from

promulgation of this rule, as those

policies and programs relate to family

concerns.

Regulatory Agenda

This underlying rulemaking for this

rule was listed as item number 1811 in

the Department’s Semiannual Agenda of

Regulations published on November 14,

1994 (59 FR 57632, 57658), under

Executive Order 12866 and the

Regulatory Flexibility Act, and was

requested by and submitted to the

Committee on Banking, Housing and

Urban Affairs of the Senate and the

Committee on Banking, Finance and

Urban Affairs of the House of

Representatives under section 7(o) of

the Department of Housing and Urban

Development Act.

List of Subjects in 24 CFR Part 3500

Consumer protection, Housing,

Mortgages, Real property acquisition,

Reporting and recordkeeping

requirements.

For the reasons set out in the

preamble, the effective date of FR Doc.

94–26583, Real Estate Settlement

Procedures Act (Regulation X): Escrow

Accounting Procedures, published on

October 26, 1994 (59 FR 53890), is

delayed from April 24, 1995, to May 24,

1995, and part 3500 of title 24 of the

Code of Federal Regulations is amended

as follows:
8816 Federal Register / Vol. 60, No. 31 / Wednesday, February 15, 1995 / Rules and Regulations

PART 3500—REAL ESTATE

SETTLEMENT PROCEDURES ACT

1. The authority citation for part 3500

is revised to read as follows:

Authority: 12 U.S.C. 2601 et seq.; 42 U.S.C.

3535(d).

2. Section 3500.8(c)(1) is revised to

read as follows:

§ 3500.8 Use of HUD–1 or HUD–1A

settlement statements.

* * * * *

(c) * * *

(1) After itemizing individual deposits

in the 1000 series using single-item

accounting, the settlement agent shall

make an adjustment based on an

aggregate analysis to reflect the

difference between the deposit required

under aggregate accounting and the sum

of the deposits required under singleitem accounting. The computation steps

for both accounting methods are set out

in § 3500.17(d). The adjustment will

always be a negative number or zero

(-0-). The servicer shall enter the

aggregate adjustment amount on a final

line in the 1000 series of the HUD–1 or

HUD–1A statement.

* * * * *

3. Section § 3500.17 is amended by:

a. Revising the fourth sentence of

paragraph (a);

b. Removing the word ‘‘servicing’’

following the phrase ‘‘the terms of any

mortgage’’ in the definition of

‘‘Servicing’’ in paragraph (b);

c. Adding a sentence after the first

sentence in paragraph (c)(1)(i);

d. Revising paragraphs (f)(3)(i)(B) and

(C);

e. Revising paragraph (f)(3)(ii)(B);

f. Revising paragraph (f)(4)(i)(C);

g. Revising paragraph (f)(4)(ii);

h. Adding a sentence after the first

sentence in paragraph (i) introductory

text;

i. Adding a sentence after the first

sentence in paragraph (i)(1) introductory

text;

j. Removing the period at the end of

paragraph (i)(1)(viii), and by adding a

phrase and sentence to the end of the

paragraph; and

k. Revising paragraph (i)(2), to read as

follows:

§ 3500.17 Escrow accounts.

(a) * * * Appendix H to this part

provides examples of biweekly

accounting and Appendix J to this part

provides examples of a 3-year

accounting cycle that may be used in

accordance with paragraph (c)(9) of this

section.

* * * * *

(c) * * *

(1) * * *

(i) Charges at settlement or upon

creation of an escrow account. * * *

The ‘‘amount sufficient to pay’’ is

computed so that the lowest month end

target balance projected for the escrow

account computation year is zero (-0-)

(see Step 2 in Appendix F). * * *

* * * * *

(f) * * *

(3) * * *

(i) * * *

(B) The servicer may require the

borrower to repay the shortage amount

within 30 days; or

(C) The servicer may require the

borrower to repay the shortage amount

in equal monthly payments over at least

a 12-month period.

(ii) * * *

(B) The servicer may require the

borrower to repay the shortage in equal

monthly payments over at least a 12-

month period.

(4) * * *

(i) * * *

(C) May require the borrower to repay

the deficiency in 2 or more equal

monthly payments.

(ii) If the deficiency is greater than or

equal to 1 month’s escrow payment, the

servicer may allow the deficiency to

exist and do nothing to change it or may

require the borrower to repay the

deficiency in two or more equal

monthly payments.

* * * * *

(i) * * * The servicer shall also

submit to the borrower the previous

year’s projection or initial escrow

account statement. * * *

(1) Contents of Annual Escrow

Account Statement. * * * In preparing

the statement, the servicer may assume

scheduled payments and disbursements

will be made for the final 2 months of

the escrow account computation year.

* * *

* * * * *

(viii) * * *, as indicated by noting

differences between the most recent

account history and last year’s

projection. Appendix I of this part sets

forth an acceptable format and

methodology for conveying this

information.

(2) No annual statements in the case

of default, foreclosure, or bankruptcy.

This paragraph contains an exemption

from the provisions of § 3500.17(i)(1). If

at the time the servicer conducts the

escrow account analysis the borrower is

more than 30 days overdue, then the

servicer is exempt from the

requirements of submitting an annual

escrow account statement to the

borrower under § 3500.17(i). This

exemption also applies in situations

where the servicer has brought an action

for foreclosure under the underlying

mortgage loan, or where the borrower is

in bankruptcy proceedings. If the

servicer does not issue an annual

statement pursuant to this exemption

and the loan subsequently is reinstated

or otherwise becomes current, the

servicer shall provide a history of the

account since the last annual statement

(which may be longer than 1 year)

within 90 days of the date the account

became current.

* * * * *

4. In Appendix A to part 3500, the

heading for the Appendix is revised,

and the second paragraph for lines

1000–1008 under the heading ‘‘Line

Item Instructions’’ is revised, to read as

follows:

Appendix A to Part 3500—Instructions for

Completing HUD–1 and HUD–1A Settlement

Statements

* * * * *

Line Item Instructions

* * * * *

Lines 1000–1008. * * *

After itemizing individual deposits in

the 1000 series using single-item

accounting, the settlement agent shall

make an adjustment based on an

aggregate analysis to reflect the

difference between the deposit required

under aggregate accounting and the sum

of the deposits required under singleitem accounting. The computation steps

for both accounting methods are set out

in 24 CFR 3500.17(d). The adjustment

will always be either a negative number

or zero (-0-). The servicer shall enter the

aggregate adjustment amount on a final

line in the 1000 series of the HUD–1 or

HUD–1A statement.

* * * * *

5. Appendix F to part 3500 is

amended by:

a. Revising in Example I, illustrating

aggregate analysis, step 3, the reference

to ‘‘Jul’’, which immediately follows

‘‘May’’ to read ‘‘Jun’’; and

b. Revising the chart for ‘‘Step 1.—

Initial Trial Balance’’ in Example II,

illustrating single-item analysis (existing

accounts), to read as follows:
Federal Register / Vol. 60, No. 31 / Wednesday, February 15, 1995 / Rules and Regulations 8817

STEP 1.—INITIAL TRIAL BALANCE

Single-item

Taxes School taxes

pmt disb bal pmt disb bal

June .......................................................... 0 0 0 0 0 0

July ........................................................... 100 500 ¥400 30 0 30

August ....................................................... 100 0 ¥300 30 0 60

September ................................................ 100 0 ¥200 30 360 ¥270

October ..................................................... 100 0 ¥100 30 0 ¥240

November ................................................. 100 0 0 30 0 ¥210

December ................................................. 100 700 ¥600 30 0 ¥180

January ..................................................... 100 0 ¥500 30 0 ¥150

February ................................................... 100 0 ¥400 30 0 ¥120

March ........................................................ 100 0 ¥300 30 0 ¥90

April ........................................................... 100 0 ¥200 30 0 ¥60

May ........................................................... 100 0 ¥100 30 0 ¥30

June .......................................................... 100 0 0 30 0 0

6. In part 3500, the appendices are

amended as follows: The text of

Appendix G is removed, the heading of

Appendix G is revised to read

‘‘APPENDIX G—(Appendix G consists

of Appendices G–1 and G–2)’’ and

Appendices G–1 and G–2 are added

after the parenthetical to read as set

forth below;

The text of Appendix H is removed,

the heading of Appendix H is revised to

read ‘‘APPENDIX H—(Appendix H

consists of Appendices H–1 and H–2)’’

and Appendices H–1 and H–2 are added

after the parenthetical to read as set

forth below;

The text of Appendix I is removed,

the heading of Appendix I is revised to

read ‘‘APPENDIX I—(Appendix I

consists of Appendices I–1 through I–

8)’’ and Appendices I–1 through I–8 are

added after the parenthetical to read as

set forth below;

The text of Appendix J is removed,

the heading of Appendix J is revised to

read ‘‘APPENDIX J—(Appendix J

consists of Appendices J–1 and J–2)’’

and Appendices J–1 and J–2 are added

after the parenthetical to read as set

forth below; and Appendices K through

N are added, reading as follows:

BILLING CODE 4210–27–P
8818 Federal Register / Vol. 60, No. 31 / Wednesday, February 15, 1995 / Rules and Regulations
Federal Register / Vol. 60, No. 31 / Wednesday, February 15, 1995 / Rules and Regulations 8819
8820 Federal Register / Vol. 60, No. 31 / Wednesday, February 15, 1995 / Rules and Regulations
Federal Register / Vol. 60, No. 31 / Wednesday, February 15, 1995 / Rules and Regulations 8821
8822 Federal Register / Vol. 60, No. 31 / Wednesday, February 15, 1995 / Rules and Regulations
Federal Register / Vol. 60, No. 31 / Wednesday, February 15, 1995 / Rules and Regulations 8823
8824 Federal Register / Vol. 60, No. 31 / Wednesday, February 15, 1995 / Rules and Regulations
Federal Register / Vol. 60, No. 31 / Wednesday, February 15, 1995 / Rules and Regulations 8825
8826 Federal Register / Vol. 60, No. 31 / Wednesday, February 15, 1995 / Rules and Regulations
Federal Register / Vol. 60, No. 31 / Wednesday, February 15, 1995 / Rules and Regulations 8827
8828 Federal Register / Vol. 60, No. 31 / Wednesday, February 15, 1995 / Rules and Regulations
Federal Register / Vol. 60, No. 31 / Wednesday, February 15, 1995 / Rules and Regulations 8829
8830 Federal Register / Vol. 60, No. 31 / Wednesday, February 15, 1995 / Rules and Regulations
Federal Register / Vol. 60, No. 31 / Wednesday, February 15, 1995 / Rules and Regulations 8831
8832 Federal Register / Vol. 60, No. 31 / Wednesday, February 15, 1995 / Rules and Regulations

APPENDIX K

(APPENDIX K consists of Appendices

K–1 through K–4)
Federal Register / Vol. 60, No. 31 / Wednesday, February 15, 1995 / Rules and Regulations 8833
8834 Federal Register / Vol. 60, No. 31 / Wednesday, February 15, 1995 / Rules and Regulations
Federal Register / Vol. 60, No. 31 / Wednesday, February 15, 1995 / Rules and Regulations 8835
8836 Federal Register / Vol. 60, No. 31 / Wednesday, February 15, 1995 / Rules and Regulations
Federal Register / Vol. 60, No. 31 / Wednesday, February 15, 1995 / Rules and Regulations 8837
8838 Federal Register / Vol. 60, No. 31 / Wednesday, February 15, 1995 / Rules and Regulations
Federal Register / Vol. 60, No. 31 / Wednesday, February 15, 1995 / Rules and Regulations 8839

Dated: February 8, 1995.

Nicolas P. Retsinas,

Assistant Secretary for Housing-Federal

Housing Commissioner.

[FR Doc. 95–3683 Filed 2–10–95; 12:46 pm]

BILLING CODE 4210–27–C