Performing Escrow Analysis

Escrow Analysis is the process of reviewing how well a homeowner's escrow payments are able to meet their escrow obligations during the year. If you collect less escrow from a homeowner than is necessary to adequately pay their escrow obligations, then you will want to adjust their monthly escrow payments upward accordingly. If the homeowner is paying significantly more than is needed to meet their escrow obligations, then you may need to adjust their monthly escrow payments downward to meet current legal escrow guidelines.

Since there is a lot of information that Keystone does not have, such as a homeowner’s personal financial situation and an affiliate’s standards and needs, you should treat the recommendations made by Keystone as guidelines and modify the adjustments according to any other pertinent information.

There are two separate and distinct processes that Keystone escrow analysis provides. These are reflected by the tabs on the Escrow analysis screen. 1) The Escrow Analysis tab focuses on information related to the homeowner’s current and projected escrow position for the next year. 2) The Affiliate Plan tab focuses on how to use this information and communicate it to homeowners in order to bring their payments and balances in accordance with escrow guidelines.

To begin escrow analysis

Run the Escrow Analysis Preliminary Exceptions Report.
This report is found on the Reports screen under Finances > Escrow Management > Escrow Analysis > Preliminary Exceptions.

It is useful to re-run the report after making corrections in each group. When you correct errors in one group, it may correct the error for that homeowner in the next group.

The report has four groups:

Amount Greater than 0 - These numbers are from the Escrow Admin tab. Review this information and adjust it as necessary. Adjusting the numbers on the Escrow Admin tab will not change any actual disbursement you have made.
Missing a Payment - There are two reasons a homeowner may be on this report. The first is that a payment has not been made. This should be investigated and the payment made prior to continuing with the analysis.

The second is that the Escrow Category is on the homeowner’s list of Expected Escrow Categories when it should not be. Correct this by: 1) going to the Escrow Admin tab on the Homeowner Payments screen, 2) clicking the Expected Escrow Categories button, and 3) deleting the unneeded categories.
Missing a Due Date - Go to the Escrow Admin tab and enter the next expected payment date.
Missing Recurrent Payee Categories - Keystone expects a payment for a homeowner (Expected Escrow Categories) and there is not an estimated next payment for this homeowner on the Escrow Admin tab. The error is corrected by either deleting the Expected Escrow Category (if this homeowner should not be paying escrow in that category) or by adding the information for the next expected payment on the Escrow Admin tab.

Running this report and correcting these errors will make the rest of the analysis more accurate.

Open the Finances tab in the Keystone ribbon and click Analysis.
The Escrow Analysis screen appears.

In the top center of this screen is the Escrow Analysis Setup button. This screen also shows the Capture Date (upper-right corner) on which you last initialized the homeowner (see below) on the Escrow Analysis Setup screen.
Click the Escrow Analysis Setup button.
The Escrow Analysis Setup screen appears. This screen has three tabs: Initialize, Annual Options and Long Term Options.

Initialize tab

Use this tab to initialize all of your homeowners (by selecting <<All Homeowners>>) or a selected set of homeowners (by selecting individual homeowners from the list). The initialization process updates the escrow payment schedule, balances for the coming year, and other information for the selected homeowners with the values you defined in the new escrow analysis.

You can use the Select Homeowners Including field on the Escrow Analysis screen to restrict this list to show only homeowners with obligations to a particular recurring escrow payee. If you want to do this, select the payee from this drop-down list and return to the Initialize tab described above.

Adjust the settings on the two tabs described below as needed prior to initializing the homeowners.

Annual Option tab

Use to set the effective date for changes in escrow payments.

Keystone will estimate the homeowner’s balance on the effective date. If the Effective Date is February 1st, Keystone will assume that all escrow payments due between the date of the analysis and the January payment have been made. It will subtract any disbursements that are scheduled to be paid between the analysis and January 31st in calculating the estimated beginning balance. As a result, the estimated balance may be less accurate the farther the Effective Date is into the future. Keep these assumptions and the homeowner’s payment history in mind when you review the results of the analysis.

You may also set global changes on individual escrow payees. Example: You may know that your city has voted to increase the tax rate by 2% for all homeowners. As a result, you would enter .02 for city taxes. This will take the payment for last year and add 2% to the expected payment for next year. Be particularly careful with increasing insurance premiums globally. Since some insurance companies use credit scores to increase rates, an increase may not apply to all homeowners.

Long Term Option tab

Use this tab to set the amount of the cushion that your affiliate would like to maintain. 100% (1.00) is the full two-month cushion, 75% (.75) is a 1 1/2-month cushion, etc.

You can also set the % Escrow Adjustment Limit. This allows you to choose the maximum amount the escrow portion of your homeowner’s payment will increase. This will not change the way you do your escrow analysis, however, it will give you information on those homeowners whose escrow will go up by more than the percentage you choose. This allows you to more easily review their situation and make a decision about how to ensure that their escrow is fully funded. Often homeowners whose payments need to increase more than the selected percentage are in a delinquent position and once the delinquency is corrected, the amount needed for escrow is within the limits.

There are two other choices on this screen for homeowners who have a surplus or a deficiency that is less than $50.00. Select the one that your affiliate would like to use in these situations.

When you have finished setting all of the options, go to the Initialize tab, select the homeowners you want to initialize, and then click the Initialize Escrow Data button. When this is complete, you are ready to review the results for the homeowners you selected.
Run the Escrow Analysis Summary Report.
This is located on the Reports screen under Finances > Escrow Management > Escrow Analysis > Summary.
Choose the Absolute Percentage Order option in the Order By pane. This will show you the homeowner’s escrow change expressed as a percent. You can easily identify those who need additional review.
Open the Escrow Analysis screen again by opening the Finances tab in the Keystone ribbon and clicking Analysis.
Select the homeowner to review from the Name(s) drop-down list.
You may restrict this list as needed to show only homeowners with obligations to particular recurring escrow payees. To do so, select the escrow payee from the Select Homeowners Including field in the upper-right portion of the Escrow Analysis screen.

Once you select the name, specific information related to the homeowner's escrow obligations is displayed on the Escrow Analysis tab in the lower part of the Escrow Analysis screen. The amount of annual liability to each payee appears in the This Year column, and the projected liability appears under the Next Year column in the Annual Liability pane. Next year's values include any global percentage increases entered in the Escrow Analysis Setup If these values require adjustment, you may make them here.

Keystone uses the Annual Liability as computed on the Escrow Admin tab on the Mortgage/Payment Information screen.

The remainder of the tab displays the details of the total annual liability of the homeowner, their balances, and the adjustments to be made in escrow payments, taking into account RESPA requirements and the cushion allowed. Keystone will display an explanation of how a number was derived when you hover the cursor briefly over one of these numbers.

If you double-click the Required Beg. Balance for Month or the Month Beg. Balance with Cushion values, the Escrow Calculator window will appear showing projected escrow account cash flow for the year following the Effective Date shown on the Escrow Analysis Setup screen.

If you hover the cursor over a month in the Dis.(Disbursement) column, Keystone will display the names of escrow payees who will be paid in that particular month.

The lowest value in the Cush. Bal. (Cushioned Balance) column is highlighted in blue. If this value is below $0, that means you would be using affiliate money to pay a homeowner's obligation that month. If you have selected a cushion on the Escrow Analysis Setup screen, this value generally will be approximately equal to the cushion you selected.

If your affiliate decides to take several years to build the escrow cushion, then the value will not be the cushion until this goal is met.

Keystone allows you to view the Escrow Calculator and the Escrow Affiliate Plan (see step 9) calculation windows at the same time, if needed.

Now that the analysis part of the process is completed, switch to the Affiliate Plan tab to determine how to apply the results and communicate them to the homeowner. You can quickly scroll from homeowner to homeowner by using the record selector button at the lower left of the Escrow Analysis screen.

The Current Monthly Payment, Monthly Liability Plus Adjustment, and Monthly Payment Adjustment fields on the Escrow Analysis tab are reproduced in the Homeowner(s) pane. The remainder of the screen displays the recommended means of implementing the adjustment and the values to be adjusted.

If you double-click on any of the fields on the Affiliate Plan pane, the Escrow Affiliate Plan calculation window will appear showing projected escrow account cash flow resulting from your plan for the year following the Effective Date shown on the Escrow Analysis Setup screen.

If you hover the cursor over a month in the Dis.(Disbursement) column, Keystone will display the names of escrow payees who will be paid in that particular month.

The lowest value in the Bal. (Balance) column is highlighted in blue. If this value is below $0, that means you would be using affiliate money to pay a homeowner's obligation that month. If your plan includes transferring money between accounts and you have selected a cushion on the Escrow Analysis Setup screen, this value should be the approximate value of the cushion you have selected. If you are not transferring money and are using homeowner monthly payments to build a cushion, this will simply then be lowest balance of the homeowner’s escrow account.

Keystone allows you to view the Escrow Calculator (see step 8 above) and the Escrow Affiliate Plan calculation windows at the same time, if needed.

The Affiliate Plan tab's Communications To Homeowner(s) pane appears when Keystone has decided that a particular escrow adjustment letter should be sent to a homeowner based on the escrow analysis. The Keystone and Escrow Management Guidelines section indicates all the options and the logic leading to the resulting letters. While Keystone will lay out an Affiliate Plan for implementing the changes, you have the freedom to modify this plan as necessary.

For more information about the data displayed here, refer to the Affiliate Plan tab section.
Adjust the letter to be used for the selected homeowner by selecting the letter from the Ltr. drop-down list.
In the names of the letters, E stands for Escrow and P stands for Principal; +, - and c stand for surplus, shortage, and current, respectively.

Thus, 3 E+, P- and Bal. <= $50 means letter number 3 is to be used for homeowners whose Escrow Account has a surplus and their Principal Account has a shortage, and after the escrow surplus is applied to the principal shortage their balance is less than or equal to $50.

To learn how to create or customize merge letters, view the Creating or Editing a Template with Microsoft Word section.

At this point, you have completed the escrow analysis.

For a summary of what you have chosen to implement as a result of your analysis, go to the Reports screen and choose Finance > Escrow Management > Recommended Transfers. You may want to do one final review before starting the final section on applying the results of the analysis and communicating them to the homeowner. If after this review you decide to make additional changes, you can reset the options and do the calculations again before you make a final decision.

Once you are satisfied with the results, you can proceed to the Making Periodic Escrow Adjustments section to implement the results of the escrow analysis.