In LoanPro there are different methods for charging and tracking escrow payments: the escrow calculator, transactions, and adjustments. The calculator is set up when the loan is configured and will automatically charge escrow when a borrower makes a loan payment. Escrow transactions are created individually after the loan has been created and Adjustments are made after loan creation and affect all payments going forward. This article will explain how to use each of these options and other escrow settings inside an account. 

Escrow calculator

The escrow calculator can only be configured on inactive loans. This is usually completed when the loan is first created. To begin the process, open a loan account and navigate to Account Setup > Setup Terms > Escrow Calculator.

On the escrow page, the following fields are available for configuration:

• Percentage Base – The base used to compute the total escrow.
• Escrow Percentage – The percentage of the base that equals the total escrow.
• Total – This should be computed automatically if you entered values for Percentage Base and Percentage. Otherwise, enter the total escrow amount into this field.
• Pro-Rate 1st Period – If the first period is irregular, you can have the escrow amount for that period change. The options are:
• Full – Make escrow higher for long periods and lower for short first periods.
• None – The escrow amount will be the same as in other account periods.
• Short Only – The escrow will only be lowered for short first periods, but won’t be raised for long first periods.
• Extend Final – If the account exceeds the term (due to missed payments, fees, etc.), choose if escrow should be charged on the extra account periods that are added to the original term.
• Term – The number of account periods that the total escrow should be divided over. This will be defaulted to the number entered as the term for the account.

To run the calculator and save the changes you’ve made, click ‘Save & Calculate’. When the loan is activated, the account will be charged escrow at each payment according to your configuration. 

Account-level escrow management

Within an account escrow settings can be modified and transaction, adjustments, and estimated disbursements can all be recorded. To use these tools, open an account and navigate to Loan Settings > Escrow Management.

Summary

This summary page will always appear first when you open Escrow Management. In the top left corner, a drop down menu will display what bucket you are currently viewing. Other buckets can be selected from the drop down.

The system will display information about the balances of the bucket and the previous and upcoming dates. 

Transaction History

Escrow transactions allow users to maintain a record of one-off deposits or withdrawals made on loan accounts. All transactions are displayed on the Transaction History page, and the dropdown menu can be used to switch between buckets. New transactions can also be added from this place in the software.

Logging an escrow transaction

To record a new escrow transaction, click 'Add'. Then enter the following information:

• Amount Type – Choose whether the transaction is a deposit or a withdrawal from the dropdown.
• Amount – Enter an amount for the transaction into the field.
• Description – Enter a description for the transaction into the field. The description should help you remember what the transaction was.
• Category – Select a category from the dropdown. This list can be customized in Settings > Loan > Escrow > Transaction Categories.
• Date – Enter a transaction date into the field. This field defaults to today’s date.

Click 'Save' and the new transaction record should be displayed on the screen. This will not trigger any money movement, it will only keep a record of the transaction.

Adjustments

Escrow adjustments modify payment amounts to collect escrow. They consist of two pieces of data: the payment period when the escrow amount will start being added to the payments, and the amount that will come due with each payment. When you enter an escrow adjustment, it will affect all future payments from the payment period you entered.

To create an escrow adjustment, navigate to Loan Settings > Escrow Management> Adjustments. Make sure you select the correct escrow bucket, then click ‘Add’.

Use the 'Period # & Date' drop-down to choose when the adjustment will start taking effect. The drop-down displays future Periods according to the schedule and the 'Other' option, which allows you to manually enter a period number, even one outside the current schedule. Enter the amount that will come due with each payment into the 'Amount' field. Enter a description for the adjustment into the 'Description' field. Then, click the blue ‘Save’ button to complete the adjustment.

Analysis Configurations

To enable escrow analysis on a bucket and begin configuring the settings, set the ‘Escrow Analysis Enabled’ field to “yes”. This will populate the Analysis Configuration section which includes four sections: Analysis, Deficiency, Shortage, and Surplus. 

Analysis

The following settings should be set on this page:

• Cushion – Choose whether the cushion amount for this escrow bucket should be a fixed amount or based on a percentage of the anticipated disbursement.
• Fixed Amount – If 'Fixed Amount' was selected for cushion, enter the fixed amount in this field.
• Escrow Computation Year Start Date – Enter the start date for the computation year used for escrow analysis.
• Next Escrow Analysis Date – Enter the next date on which escrow analysis should be performed.

Deficiency Settings

The Deficiency settings let you decide how LMS should identify and deal with an escrow deficiency (less than $0.00 in the account).

The top section lets you specify items related to an escrow deficiency including:

• Deficiency Delimiting DPD – This is the number of days past due the escrow account can be before it is considered deficient.
• Deficiency Days To Pay – This is the number of days the customer will have to remedy the deficiency.
• Deficiency Catch Up Payment Number – This is the number of payments for which the escrow amount will be increased in order to remedy the deficiency.
• Deficiency Delimiting Amount – This selection will tell the system how to decide how much the escrow account cushion should be before it will be considered deficient. The options include:
  • Fixed Amount – The dollar amount of the cushion. Any amount less than this will mean the account is considered deficient.
  • Percentage – This is the percentage of the yearly disbursement that the cushion should equal. Anything less than this and the account is considered deficient.

Deficiency Actions determine what the system should do in each situation listed (e.g. If the deficiency is less than: $0.00 & loan is less than 30 days past due). Click the circle next to the action you wish to select.

Shortage

An escrow shortage occurs when the bucket amount falls below the cushion amount but is still greater than $0.00. This section allows you to define your shortage parameters. The options in this section are similar to the options available in the deficiency section.

Shortage Actions

The shortage actions section is dynamic meaning its values will change when you change the values in the Shortage Settings section. In this section, you can set actions for what the system should in the instance of a shortage.

Surplus

A surplus occurs when it is found that the amount of money in this escrow account at its lowest point will still exceed the selected cushion amount. This section allows you to determine your criteria for an allowed account surplus.

Surplus Actions

The surplus actions section is also dynamic so its values will change when you change the values in the Surplus Settings section. In this section, you can set actions for what the system should do in the instance of a surplus.

Once you have set your desired analysis settings, click ‘Save’. Now the bucket will be available for use across the tenant.

 

 

Escrow Estimated Disbursements

Estimated disbursements are the payments you plan to make from the money you collect in an escrow account. Estimated disbursements are used in escrow analysis.

To create a new estimated disbursement, navigate to Loan Settings > Escrow Management inside of an account

Choose the escrow bucket you want to add the disbursement for using the buttons at the top of this section. Once you’ve chosen the escrow bucket, navigate to the Estimated Disbursements tab. Click ‘Add’ .

The following options are available when entering a new estimated disbursement:

• Date – The date on which the next estimated disbursement will come due.
• Estimated Amount – The amount of the next estimated disbursement.
• Recurring Frequency – The frequency with which disbursements from this escrow account typically come due.
• Memo – Any additional information you want to add about the estimated disbursement.
• Category – The escrow disbursement category. The available options are the escrow transaction categories.
• Vendor – The company or organization to which the disbursement will be made. The vendors list can be customized in Settings > Loan > Escrow > Vendors.

Once you have entered the information for the estimated disbursement, click ‘Save’.

Special Uses

Sales tax (Escrow percentage fixed)

This section specifically addresses adding sales tax through escrow using the percentage-fixed calculation to determine how much of each payment should apply to sales tax.

This method works as follows:

• An escrow bucket is set up to collect sales tax
• The settings for Payment Application and Payoff are set to “Percentage Fixed”
• When an account is created, the settings in the Escrow Calculator for this bucket should be:
  • Percentage Base: “Base Payment Amount”
  • Sales Tax Percentage: The sales tax percentage for the loan/lease
  • Term: The term of the loan/lease
• Each time a payment, including payoff payments, is made, the correct portion of the payment will be applied to sales tax, regardless of the payment amount.

This is different from the standard payment application, in which a specific amount of escrow would come due in a payment period, and the payment would apply to each component in a specific order.

For example, in a standard application, if $100 of principal, $200 of interest, and $10 of sales tax was due, and the payment waterfall application order was escrow, interest, principal, then, if the customer made a $150 payment, $10 would apply to sales tax, and $140 would apply to interest.

Remember that waterfall application still applies to everything except percentage-fixed-application escrow buckets. That means that if $10 of a $200 payment is paid to percentage-fixed-application escrow buckets and there is $150 of interest due and $50 of principal due with a waterfall application order of interest then principal, $150 will apply to interest, $40 to principal, and $10 to escrow.

If multiple escrow percentage-fixed-application buckets exist on the same account, the percentage of the payment allocated to a bucket is calculated as interest + principal + percentage-fixed escrow buckets created after the current one. For example, if a $200 dollar payment applies as follows:

Sales tax bucket setup

The first step in collecting sales tax in this way is to set up a new escrow bucket. This bucket should be named Sales Tax so it's clear what it's designed to collect. To set up the escrow bucket, navigate to Settings > Loan > Escrow > Buckets inside your LoanPro account. 

 Click ‘Add’ the enter the information.

Give the bucket a title like Sales Tax, and make sure Payoff and Payment Application are both set to "Percentage Fixed". Click ‘Save’.

Set up an account

To set up an account using a percentage-fixed escrow bucket to collect sales tax, follow your standard procedure for setting up an account. You must use the Escrow Calculator to set up this option. 

Choose ‘Base Payment Amount’ from the Percentage Base drop-down. Enter the sales tax as a percent, not a decimal (e.g. 6.6 not 0.066) in the Sales Tax Percentage field. This field uses the name of the escrow bucket, and may be called something different depending on the name you chose. Enter the same Term as you entered for the account.

Once everything is entered, click ‘Save & Calculate’ to activate it. You are now ready to collect sales tax.

Adjust an existing account

If you have an account that has already been created, you can adjust the escrow to work as a percentage fixed. In order to do this, navigate to Loan Settings > Escrow Management inside the account. Make sure you have selected the correct escrow bucket. Navigate to the ‘Adjustments’ section and click ‘Add’. Now click the ‘Escrow Calculator’ Button and enter do the following:

• Change the Percentage Base to “Base Payment Amount”
• Enter the sales tax percentage in the Percentage field
• You can either leave the term the way it is, or you can enter the account term in the Term field. If you leave the term at 1, there will be an extra adjustment created that should be deleted, but the sales tax will apply for the life of the account. If you enter the term of the account, sales tax may not be assessed after the original account term is over.

When this is done, click ‘Apply’.

If you choose to enter the ‘account term’ as the term of the account, you are done. If you choose to leave the term at 1, two adjustments will be shown. In order to make sales tax persist for the duration of the account, only keep the first adjustment. To delete adjustments, click the trash icon.