Question

What is the amount of "cushion" allowed in the escrow account according to RESPA?

1) -50 over 1/6 of the annual disbursements
2) -500 over 1/16 of the annual disbursements
3) 10
4) Exactly 1/24 of the annual disbursements

Answer 1

RESPA allows mortgage lenders to maintain a cushion in an escrow account up to two months of escrow payments or 1/6 of the annual disbursements.

Step-by-step explanation:

The question pertains to the Real Estate Settlement Procedures Act (RESPA), which regulates the amount of cushion that an escrow account can maintain. According to RESPA, mortgage lenders are allowed to require a borrower to pay into an escrow account no more than one-sixth (or approximately 16.67%) of the total estimated annual disbursements for escrow items. In terms of a cushion, RESPA permits lenders to keep a cushion equivalent to two months of escrow payments, which is approximately 1/6 of the annual disbursements.

Therefore, the correct answer is "-50 over 1/6 of the annual disbursements," although the phrasing of the question's options is a bit unclear.