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A borrower's annual property taxes are $4,800 and the homeowners insurance premium is $1,200. Under Regulation X, what is the largest cushion the servicer may hold in the escrow account?
A servicer may require a cushion of no more than one-sixth of the estimated total annual disbursements from the escrow account (12 CFR 1024.17(c)(1)). Annual disbursements: $4,800 + $1,200 = $6,000. One-sixth: $6,000 / 6 = $1,000, which equals two months of escrow payments. $1,500 is three months of payments (one-quarter), and $2,000 is a third. Source: 12 CFR 1024.17(c)(1) (as at 11 Oct 2026).
Holding three or four months of escrow payments instead of the two-month (one-sixth) cap.
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