WASHINGTON – Aug. 7, 2018 – United Wholesale Mortgage (UWM), one of the country's highest-volume lenders, is giving borrowers an escrow-free option with their mortgage, at no extra charge.
Even borrowers with less-than-perfect credit histories or who made small downpayments may be eligible to bypass having an escrow account with the bank.
Banks typically require escrow accounts on conventional home mortgages as a way to guarantee that owners pay their property taxes and retain property insurance. Homeowners essentially deposit money in advance and the lender later pays their local property taxes and hazard-insurance premiums.
Typically, lenders grant only a select few mortgage borrowers a waiver from having an escrow account with the bank, typically reserved for people with excellent credit scores or those who made a large downpayment on a home.
But United Wholesale Mortgage is opening up the waivers to borrowers even with poor credit. The bank is allowing conventional loan borrowers with FICO credit scores as low as 640 and downpayments as low as 5 percent to avoid escrow accounts.
By waiving escrow accounts, the lender says a borrower could potentially save $3,625 on a $300,000 mortgage in closing fees related to the escrow.
Mat Ishbia, president and CEO of UWM, told The Washington Post that those qualifying for the escrow waivers "are all high-quality borrowers that are approved through automated engines at Fannie Mae and Freddie Mac, and verified by our underwriters."
But some in the housing industry are concerned.
Critics worry whether homeowners will be ready to make a big large lump-sum tax or insurance bill when it comes due without the forced savings of an escrow account.
"Sounds like we are back in 2008 again," says David I. Ginsburg, president of Loanech, a national authority on escrow account audits. "When the next slowdown occurs, these borrowers will have problems, and we know what that will look like."
Source: "Major Lender Allows Borrowers to Go Without Escrow Accounts," The Washington Post (Aug. 1, 2018)
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