By Brian Carmody, Director of Marketing & Communications

Without sounding like Chicken Little (“The sky is falling!”), an escrow storm is brewing. The combination of dramatic increases in homeowners and flood insurance premiums and higher tax bills due to home price appreciation are going to cause millions of homeowners to face higher monthly mortgage payments. Are consumers expecting this increase? Are they aware of the factors that could impact their monthly mortgage payment? If so, are they financially prepared for it?

To better gauge consumers’ understanding of escrow accounts and the conditions that could impact their monthly mortgage payment, we conducted a survey of 1,000 homeowners who had purchased or refinanced homes in the past four years and who have an escrow account. What we found was a significant lack of understanding and varying levels of awareness when it comes to this aspect of homeownership.

Some of the key findings were:

  • More than 80% of the homeowners surveyed understood what escrow accounts were and what they were supposed to do: pay taxes and insurance. Despite this, only 52% of those surveyed said they were completely aware of how their escrow account worked, which indicates that their level of understanding was significantly lacking.
  • More than a quarter (28%) are only somewhat aware or not aware at all that changes in their escrow accounts can affect their monthly payments.
  • More than a third (36%) who have a fixed-rate mortgage believe their monthly payment absolutely cannot change, even though it can.
  • Of those who have already experienced an increase in their monthly mortgage payment, more than half (53%) were surprised and did not expect it

In addition to looking at consumers’ understanding of escrow accounts, the survey also found a concerning lack of financial capacity on the part of homeowners to handle escrow increases. Specifically:

  • Half of the homeowners surveyed (50%) said it would be a hardship if their monthly mortgage payment increased by 10%. Nearly 15% said they would not be able to pay their mortgage if their payment increased by that amount.
  • If their payments increased by 25%, almost half (49%) said they would not be able to pay their mortgage and another 30% said it would present a hardship.

The lack of understanding of escrow accounts and their impact on monthly mortgage payments are concerning. It suggests that homeowners will be getting some unpleasant surprises in the near future. This will, in turn, lead homeowners turning to their servicers for answers and assistance. So, what can servicers do to get in front of the situation? Our advice: Be proactive!

Most servicers that we talk to are taking the impending escrow storm seriously and are developing proactive programs to reach out to impacted borrowers through various forms of communication including direct mail, email, general escrow messages on monthly statements and outbound calls alerting them to pending increases to their escrow accounts. Finally, to be ready for higher call center volume, many servicers are developing updated scripts to address new escrow issues and training associates on how to deal with these specific issues.

Escrow increases are challenging for servicers and borrowers alike. We’re working with our clients to help them weather the storm and to help them demystify the enigma for their borrowers.

Make a change today

Learn about how we’re challenging the status quo of tax and flood services.