Before we come to blows (figuratively!) with our external compliance auditor I just wanted to sound out the opinion of the experts in this forum.

On a recent escrow compliance review, we were written up because annual escrow statements did not have the interest listed separately in the statement part of the analysis showing escrow account history for the previous escrow year nor was there a separate line item stating the amount of interest paid during the previous escrow year. There is no requirement in the regulation stating that the interest paid for the previous escrow year has to be stated in the escrow analysis, but they are claiming by not showing separate interest amounts, it is not an accurate statement of the previous year escrow history under 1024.17(i)(1). We have demonstrated by providing customer account histories that the payments shown on the previous year escrow history does equal escrow payments made by the customer and interest paid by the bank for that month, but they are still saying it is not accurately reflecting the activity in the escrow account.

For example, if the customer pays $100/month for escrow and the bank pays $1 in interest that month, then the line item on the previous year escrow history will show:

Month/year - (payments made) $101.00

They are saying it should show:

Month/year - (customer payment made) $100.00
(same) Month/year - Interest $1.00

We say it is showing the activity for the month; they say it is not accurately showing the activity for the month. So in your learned opinions, which way should it be?

By the way, my preference is for the interest to be shown separately as a total somewhere for the escrow year rather than have to jump through all the hoops to prove that interest was paid and how much, but we also send out 1099-INTs at year-end if the customer receives more than $10.00 in interest.

Unless there is some State law requirement of how this is to be shown on escrow statements, there is no guidance in RESPA as to how to reflect interest payments. Even if you go back to the 1995 Public Guidance Documents, there is nothing. Either the auditor needs to give you a citation or they need to back down. It is just an opinion at this time without any support as to what is right or wrong under the regulation.

Thank you.

There is a state law that says we have to provide a statement of interest earned annually, but it does not specify how to provide the statement. I am double checking to see if we provide a 1099-INT on all escrows regardless of the amount, which should satisfy state law.