Freddie Mac Single-Family Seller/Servicer Guide 8201.1 — Escrow account management for property taxes, ground rents, assessments or other charges and waiver requirements

This section contains requirements related to: ■ Annual Escrow analysis ■ Waiver of Escrow accounts ■ Non-payment of Escrow charges ■ Escrow waiver exception requests ■ Interest of escrow accounts The Servicer must obtain bills for and pay all Escrow items in accordance with the terms of the Mortgage before the applicable penalty or termination date. The Servicer must maintain adequate records to prove payment of all property taxes, ground rents and assessments or other charges that, if delinquent, are or may become First Liens on the property or that if not paid would result in the subordination of Freddie Mac’s interests, as applicable. Note: See Section 9301.6(e) regarding expenses that may become First Liens on the property. If the Borrower requests, the Servicer may also collect and administer funds to pay expenses not provided for in the Mortgage, such as life insurance on the Borrower. If the Servicer does not collect Escrow or discontinues collecting Escrow, then: ■ The Servicer must require that the Borrower furnish proof of payment; and/or ■ The Servicer may use other means (such as tax services) commonly employed by private institutional mortgage investors to satisfy itself that these items have been paid

(a) Annual Escrow analysis At least annually, the Servicer must compute the required Escrow payment based on reasonable estimates of assessments and bills to determine that sufficient funds are being collected to meet all Escrow payments. (i) Escrow surplus If the amount held in Escrow by the Servicer, together with the future monthly installments of Escrow, exceeds the amount required to pay charges as they fall due, plus any “cushion” permitted by applicable law, the Servicer must either: ■ Repay the excess promptly to the Borrower (if there is no default under the terms of the Security Instrument), or ■ Credit the excess to the Borrower by a reduction in monthly Escrow installments Any interest payable to the Borrower for Escrow, when required by applicable law, or any other funds held by the Servicer, whether due to contractual agreement or operation of law, must be paid by the Servicer at its own expense. (ii) Escrow shortages If the Borrower is unable to pay an Escrow shortage as a lump sum, then the Borrower must pay the shortage as part of the monthly payment (“Projected Monthly Escrow Shortage Payments”) on the Mortgage. If the Borrower must pay Projected Monthly Escrow Shortage Payments, then the Servicer must: ■ Spread the repayment of the Escrow shortage amount in equal monthly payments over a period of not more than 60 months; and ■ Account for any remaining unpaid amount of the Escrow shortage in any subsequent Escrow analysis to ensure that the Borrower is able to continue to pay all Escrow shortage amounts over the remaining portion of either the current remaining Escrow shortage repayment period or a period up to 60 months. The Servicer may not accelerate or compress the remaining Escrow shortage amount into a new Escrow payment or shorter repayment period as a result of a future Escrow analysis.

(b) Waiver of Escrow accounts The Servicer must have a written policy governing the circumstances under which Escrow accounts may be waived. When a Servicer permits Escrow waivers, subject to the Mortgage Purchase Documents and applicable law, the Servicer’s written policies must provide that the waiver not be based solely on the loan-to-value ratio of the Mortgage but also on whether the Borrower has the financial ability to handle the lump sum payments of property taxes, property insurance premiums and other charges described in the Security Instrument. The Servicer may, by written notification to the Borrower and without Freddie Mac’s approval, start collecting Escrow previously waived. Any Escrow account waiver must be in writing and grant the Servicer the right to resume collection of Escrow if there is any nonpayment of the items for which Escrow had previously been collected. (i) Circumstances in which Escrow may be discontinued Servicers must discontinue collecting Escrow when required by applicable law. If not prohibited by applicable law and the Mortgage is current, Servicers may approve an Escrow waiver requested by the Borrower, except as stated in Section 8201.1(b)(ii), if: ■ The unpaid principal balance for the Mortgage is less than 80% of the original appraised value; or ■ The Mortgage has not been delinquent for 30 days or more at any time during the previous six months Additionally, there is no minimum period having elapsed since the Origination Date of a Mortgage when evaluating an Escrow waiver request. (ii) Circumstances in which Escrow may not be discontinued Servicers may not discontinue or waive collecting Escrow on the following Mortgages if they had an Escrow account when sold to Freddie Mac: ■ A Mortgage secured by a Manufactured Home or a 2- to 4-unit property ■ An Affordable Gold® 97 Mortgage ■ A Texas Equity Section 50(a)(6) Mortgage ■ A Freddie Mac 100 Mortgage ■ A Home Possible® Mortgage ■ A HomeOne® Mortgage ■ A HeritageOne® Mortgage Additionally, except Mortgages modified under the terms in Section 9206.1(c)(v), a Servicer may not discontinue or waive collecting Escrow on Mortgages that have been modified under a Freddie Mac mortgage modification program. Servicers must follow FHA, VA, RHS or MI Escrow waiver and reinstatement requirements.

(c) Non-payment of Escrow charges (i) Mortgage with an Escrow account If the funds held in Escrow are insufficient to pay charges when due, the Servicer should obtain the necessary additional funds from the Borrower before the latest date on which the charges may be paid prior to penalty, lapse of insurance policies, adverse impact to Freddie Mac’s interest in the Mortgage, etc. If the Servicer is unable to obtain the funds from the Borrower, the Servicer must pay any charges due. The Servicer may either increase the Borrower’s next payment to cover the entire advance or schedule the repayment of such advance over several months. The Servicer may not collect the advance by deducting from one or more regular monthly Mortgage payments. For delinquent Mortgages, the Servicer must continue to pay Escrow items for the following expenses: ■ Property taxes, property insurance premiums and other charges as described in the Security Instrument ■ Mortgage insurance premiums, if applicable Servicers must contact Freddie Mac (see Directory 5) and obtain Freddie Mac’s written approval before paying the taxing authority when federal, State or local income tax liens would take priority over Freddie Mac’s First Lien position. However, if the Mortgage is secured by a Manufactured Home and the Borrower becomes 60 days or more delinquent, a Servicer must start collecting Escrow that was previously waived as a part of any repayment arrangement. (ii) Mortgage without an Escrow account If Escrow is not collected and the Servicer discovers nonpayment of any charge otherwise payable from Escrow, the Servicer must contact the Borrower and allow the Borrower 30 days to provide proof of payment. The Servicer must advance funds for the unpaid charge and any applicable penalty if the Borrower indicates inability to make the payment or does not provide proof of payment within the required 30 days. The Servicer must attempt to work out an arrangement with the Borrower for repayment of any advance and, if allowed by applicable law, must begin to collect Escrow for future bills. If both: ■ The Borrower fails to pay any charge otherwise payable from Escrow; and ■ The Servicer has advanced funds for the unpaid charge and any applicable penalty And either: ■ A mutually satisfactory arrangement cannot be made for the Borrower’s repayment of the advance or the Borrower fails to comply with the terms of any such arrangement; or ■ The Borrower fails to pay Escrow to the Servicer after the Servicer starts collecting Escrow that was previously waived Then the Servicer must comply with the collection, loss mitigation and, if necessary, foreclosure referral requirements set forth in Chapters 9101 or 9102, as applicable.

(d) Escrow waiver exception requests If the Servicer believes that the Borrower should not need an Escrow account, even though the Borrower did not meet the requirements under Section 8201.1(c), then the Servicer must submit an exception request to Freddie Mac (see Directory 5) for review.

(e) Interest on Escrow accounts If the Servicer either has entered into an agreement or is required by law to pay interest on Escrow, the Servicer is solely and fully responsible for this payment. The accounting related to the payment of interest on Escrow may not be included with the regular Mortgage accounting for principal and interest.