Escrow Analysis Overview

Audience: Accounting, Loan Servicing/Collections Managers, Administrator, Compliance, Data

Introduction

Escrow analysis is a periodic audit of escrow funds received to determine whether funds collected into escrow accounts will be sufficient to fulfill estimated escrow disbursements (payments made from escrow). In a typical escrow analysis, the lender will enter information on planned disbursements (payments) they will make from those accounts. The lender will usually also specify a cushion amount for each escrow account (typically equal to some number of escrow payments). The cushion is an amount above the disbursement amount that will be collected.

Escrow analysis will take all this information and determine if the amount collected in escrow so far, plus the amount that will be collected before the disbursement date will cover the estimated disbursement amount. At the end of the analysis, LoanPro will generate a downloadable statement to show the results. The statement will be different based on if there is a surplus, shortage, or deficiency.

Escrow analysis only needs to be performed at the beginning of a loan and once a year after that. When the analysis is performed, there are specific documents that need to be provided to the borrower. These documents can be generated by LoanPro.

How to Run an Escrow Analysis

Before you run an analysis, you'll need to set up escrow buckets on whichever accounts you want to analyze. You'll first have to create an escrow bucket at the tenant level, and then log an escrow adjustment on a loan to make that bucket collect money with each payment. Lastly, you might want to add some estimated disbursements showing when and to whom you plan to remit money from the bucket. Once you've got accounts set up to collect and disburse escrow, you're ready to perform an escrow analysis.

Selecting Loans

From the loan manager, search for the set of loans that you want to perform an escrow analysis on. Click the data options drop-down and select 'Run Escrow Analysis'. This will bring up a screen where you can select which loans from that group you want to run the analysis on. When you've got the right list of loans, click the green 'Start Escrow Analysis' button in the top right corner and pick the escrow bucket that you'd like to analyze.

This will bring you to the next page, where you enter two key dates for future escrow analyses:

• Escrow Analysis Start Date – This is when the analysis is performed.
• Escrow Computation Year Start Date – This is when the escrow year starts.

When you've entered the dates, click the blue 'Set Dates' button to continue.

Step 1 – Starting Balance

On the Starting Balance page, you'll see a quick summary of your current balance, estimated disbursements, and the difference between them, called the starting balance.

Step 2 – Anticipated Disbursements

On this page, you'll see a review of anticipated disbursements you've already saved. If there aren't any there yet, you can add them now.

To add a disbursement, you'll need to enter the date, amount, frequency, category, and vendor. You can also add a memo to explain what the disbursement is for.

Step 3 – Initial Trial

This step shows the loan schedule according to the plan you've created so far. It shows how much escrow is collected with each payment, and what this contributes to the balance of the escrow bucket. The yellow highlight shows which line has the lowest balance in the computation year.

Step 4 – Adjustment/Analysis Summary

This step shows the escrow you'll collect over the computation year and compares it to the total disbursements. Depending on the difference between those figures, you'll have one of three possible outcomes:

• A surplus means the amount exceeds the cushion amount for the account. You'll likely collect more than you'll need to cover all the anticipated disbursements and the cushion. You can credit the additional funds towards the next year's escrow or the loan's balance, or make no change at all.
• A shortage is an amount less than the cushion, but greater than $0.00. You'll be able to cover all anticipated disbursements, but you haven't reached the cushion amount. You can choose to let the shortage exist, or add some additional escrow payments to make up the difference.
• A deficiency is an amount less than $0.00. You won't collect enough escrow to cover your anticipated disbursements. You can either keep things how they are, or add some additional escrow payments to cover the difference.

Step 5 – Escrow Analysis & Actions Confirmation

This step summarizes the analysis and lists the actions that you're about to make. The left side of the screen shows

Step 6 – Statement Output & Summary

This step is similar to the previous one. On the left, it shows the same basic analysis information. On the right half of the screen, however, it shows the escrow schedule for the coming computation year, listing each payment and disbursement in chronological order.

When you click 'Finish', you'll exit the escrow analysis tool.

Common Uses & Questions

Most lenders, who use escrow for the purpose for which it was designed, will run escrow analysis once a year. If you use escrow analysis, you will likely send the final report to each borrower that needs it. The generation can't be done automatically and can't be sent through automated communications channels.

Can I set up this report to run automatically and send the report to borrowers? No. The report must be run manually and must be sent manually.

Terminology

Most of these terms are also covered in our Escrow Overview article, but here's a quick rundown.

What’s Next

You might also be interested in making changes to an escrow bucket outside of the analysis tool. Our article on Updating Escrow Account Settings will show you how to edit the default settings for escrow buckets, or the settings on individual loans. Escrow Estimated Disbursements will help you add or edit the transactions you anticipate in the future.