Final answer:
An annual escrow analysis adjusts escrow payments to prevent overages, ensuring homeowners are not surprised by large account deficits or excesses. Option a is the correct answer.
Step-by-step explanation:
An annual escrow analysis is conducted to prevent escrow overages. Escrow overages occur when there is more money accumulated in the escrow account than necessary to cover expenses such as home insurance and property taxes. By analyzing the escrow account annually, any excess funds can be returned to the homeowner or used to reduce future mortgage payments.
An annual escrow analysis is typically conducted to ensure that the correct amount of funds are being collected and held in escrow to cover property taxes and homeowner's insurance, without creating a significant overage or shortage. The main purpose is to adjust the monthly escrow payment to reflect the actual cost of these expenses, thereby preventing escrow overages or shortages. This process ensures that homeowners are not surprised by large deficits or excesses in their escrow accounts, and that the amounts being set aside are as accurate as possible.