How often must a lender perform an escrow account analysis to ensure no excess funds are being kept?

A lender must perform an escrow account analysis at least once per year to ensure that no excess funds are being held in the escrow account. This annual analysis is a requirement by the Real Estate Settlement Procedures Act (RESPA), which mandates that lenders review the account to assess the balance and determine if adjustments are necessary. The purpose of this analysis is to ensure compliance with regulatory requirements and to provide borrowers with fair access to their funds, preventing overcollection while still maintaining an appropriate buffer for anticipated expenses such as taxes and insurance.

Annual reviews also empower lenders to adjust the monthly escrow payments if necessary, based on changes in property taxes or insurance premiums, thereby keeping the escrow account in balance and minimizing excess funds. This practice supports transparency and consumer protection in the mortgage lending process.