Real Estate Settlement Procedures Act (Regulation X); Escrow Accounting Procedures

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 Government-Sponsored 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 [[Page 8813]] Estimate requirement under Sec. 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 phase-in

period, Sec. 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 Sec. 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, Sec. 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, Sec. 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, Sec. 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, Sec. 3500.17(c)(1)(i), and page 53904,

Sec. 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, Sec. 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 full-year's taxes in advance,

although they were billed on an installment basis.

(i.) [Page 53904, Sec. 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.:

[GRAPHIC][TIFF OMITTED]TR15FE95.021

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:

[GRAPHIC][TIFF OMITTED]TR15FE95.022

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, Sec. 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, Sec. 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, Sec. 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 [[Page 8814]] allows for

explanatory language in the event of both a deficiency and a remaining

shortage.

(m.) [Page 53905, Sec. 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, Sec. 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 Sec. 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, Secs. 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 Sec. 3500.17(h)(3)

for examples).

(p.) [Page 53906, Sec. 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, Sec. 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 short-year 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.) [Sec. 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

Sec. 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?

[[Page 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:

[[Page 8816]]

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:

Sec. 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 single-item accounting. The computation steps for both

accounting methods are set out in Sec. 3500.17(d). The adjustment will

always be a negative number or zeroP (-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 Sec. 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:

Sec. 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

Sec. 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 Sec. 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 single-item 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:

[[Page 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

[[Page 8818]]

[GRAPHIC][TIFF OMITTED]TR15FE95.000

[[Page 8819]]

[GRAPHIC][TIFF OMITTED]TR15FE95.001

[[Page 8820]]

[GRAPHIC][TIFF OMITTED]TR15FE95.002

[[Page 8821]]

[GRAPHIC][TIFF OMITTED]TR15FE95.003

[[Page 8822]]

[GRAPHIC][TIFF OMITTED]TR15FE95.004

[[Page 8823]]

[GRAPHIC][TIFF OMITTED]TR15FE95.005

[[Page 8824]]

[GRAPHIC][TIFF OMITTED]TR15FE95.006

[[Page 8825]]

[GRAPHIC][TIFF OMITTED]TR15FE95.007

[[Page 8826]]

[GRAPHIC][TIFF OMITTED]TR15FE95.008

[[Page 8827]]

[GRAPHIC][TIFF OMITTED]TR15FE95.009

[[Page 8828]]

[GRAPHIC][TIFF OMITTED]TR15FE95.010

[[Page 8829]]

[GRAPHIC][TIFF OMITTED]TR15FE95.011

[[Page 8830]]

[GRAPHIC][TIFF OMITTED]TR15FE95.012

[[Page 8831]]

[GRAPHIC][TIFF OMITTED]TR15FE95.013

[[Page 8832]]

APPENDIX K

(APPENDIX K consists of Appendices K-1 through K-4)

[GRAPHIC][TIFF OMITTED]TR15FE95.014

[[Page 8833]]

[GRAPHIC][TIFF OMITTED]TR15FE95.015

[[Page 8834]]

[GRAPHIC][TIFF OMITTED]TR15FE95.016

[[Page 8835]]

[GRAPHIC][TIFF OMITTED]TR15FE95.017

[[Page 8836]]

[GRAPHIC][TIFF OMITTED]TR15FE95.018

[[Page 8837]]

[GRAPHIC][TIFF OMITTED]TR15FE95.019

[[Page 8838]]

[GRAPHIC][TIFF OMITTED]TR15FE95.020

[[Page 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