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Homeowners who want to break free from mortgage escrow accounts and keep that cash in their own interest-bearing account until the payments are due must determine who owns their mortgage loan. Most loans under $322,700 are probably owned by Fannie Mae or Freddie Mac. Not all homeowners want to take over the job of making their own tax and insurance payments.

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Kiplinger's Personal Finance, Vol 57, Issue 3, March 2003 (410 words)

page(s) 90

by Elizabeth Razzi

(reporter: KATY MARQUARDT, )

page 90|ManagingKIPLINGER'S | MARCH 2003

HOMES | How to break free from funding the ESCROW ACCOUNT. By Elizabeth Razzi

Many homeowners enjoy the convenience of paying each month into a mortgage escrow account to take care of big annual (or semiannual) bills for property taxes and homeowners insurance. But if you'd rather keep that cash in your own interest-bearing account until the payments are due--or if the mortgage company is sloppy about paying your obligations on time--you may be able to break free from the escrow-account warden.

Your success depends on who owns your mortgage loan. Usually it's not the organization named on your monthly payment stub. That's the servicer, which is responsible for collecting your payments, managing the escrow account, and forwarding principal and interest to some unseen investor who actually owns the note.

For most loans under the "jumbo" threshold of $322,700 (the amount was lower in previous years), that investor is probably Fannie Mae or Freddie Mac. Both organizations let the servicer decide whether to approve your request to drop an escrow account.

But if you have a jumbo loan, it would have been sold to another investor, and all bets are off. Some investors demand that escrow accounts be used; others set their own conditions for allowing homeowners to pay the bills directly. They might, for example, allow a homeowner to drop the escrow account when the loan balance is less than 70% of the home's value.

Two of the nation's largest mortgage servicers--Seattle-based Washington Mutual (WaMu) and GMAC Mortgage, based in Horsham, Pa.--will consider dropping escrow accounts for borrowers who submit a request in writing. Unless your loan happens to be owned by a more restrictive investor, WaMu will allow you to get out of the escrow account if you have at least 20% equity in the home and a history of making mortgage payments on time. (You will have to provide a receipt for your paid-up insurance policy each year.)

GMAC also requires 20% equity and a clean payment history, and your loan must be at least two years old before you may drop the escrow account. A limited appraisal, costing about $150, may be required to determine your equity.

Not all homeowners want to take over the job of making their own tax and insurance payments, says Joan Kramer, national customer-care manager for WaMu. "We have about as many who add as who close escrow accounts," she notes. "They know those funds are being set aside."

Credit: KATY MARQUARDT