Can lender refuse escrow removal when there is no reason for it?

Question

I have a conventional 30 yr mortgage for 3 years. I have always paid on time and recently canceled PMI so there is no PMI right now. I have a LTV <0.8. The lender said the investor (in my loan) has refused to remove my escrow account. But, there is no reason why lender insists on that when I have above parameters. The lender does not provide any reason as to why lender refuses it or what factor prevents them from doing so. I am in TX. I wrote a complaint on CFPB. What are my options?

Chris Seveney · Answer

PMI and Escrow are two totally different things. Most loan documents require the property to be escrowed for taxes and insurance as that protects the lender to make sure they are being paid. The default rates on taxes and insurance I would bet are 10 fold compared to loans who have escrow because people live paycheck to paycheck and then when a big bill comes due they cannot pay it.

I would guess your loan documents require it

BTW why are you putting up a big fuss on having the servicer hold taxes and insurance escrow?

Patrick Roberts · Answer

For a lot of lenders, there is a pricing adjustment when a loan is originated to waive escrows. As other have said, escrows/impounds for taxes and insurance materially decrease the risk in the loan. Many people are undisciplined and will spend this money if it's not escrowed and then will be unable to pay taxes and insurance when due. This leaves the lender/servicer to advance the funds needed or puts the collateral at risk if not paid.

You're asking the lender to bear more risk for your benefit. This typically comes with a cost, and usually that cost is the pricing adjustment, although some will waive escrows later for a fee. You don't get a gold star for paying your loan on time; this is the baseline expectation and is what you agreed to do when you took the money.

Ultimately, the source of truth for whether you can have escrow cancelled will be your loan documents. If there is a provision for this in the terms, then pursue it. If not, then you don't have a leg to stand on and filing a CFPB complaint will do nothing.

Turgut Oz · Answer

Is that a real question? Let me ask you this. Why would I not want to keep my own funds in my own control and use it how I want?

Bruce Lynn · Answer

I think CFPB is dissolved or soon will be.  DOGE effect.

There was a brief period of time where strong borrowers and even some weak borrowers were allowed to waive escrows.  It didn't work out all that well for lenders.  If you can't pay monthly, then how are you going to pay this big chunk when they become due.  This caused a lot of foreclosures, because the borrowers just couldn't pay.  Then the whiplash happened and even responsible and well positioned borrowers were forced to escrow again.    For a short time some lenders decided they didn't want to be responsible for escrow and I don't think that lasted very long.  My lender on my personal home mortgage was one of those.  I didn't have a choice.   I still pay my own taxes and insurance.  So you can ask, but don't sweat the small stuff.  You're not going to get wealthy playing small games like fighting escrow and writing to CFPB.  Fight for things like bonus depreciation or lower deficits that would help lower interest rates for investors, or more opportunity zones, or something that will really move the needle for you.  Fight rental inspections, or rogue JPs who don't follow eviction law or 100 other issues that will make a difference.

JD Martin · Answer

Most people would be in doomsday scenario if escrow were removed, because a significant portion of buyers would not be disciplined enough to set aside the funds themselves for payment and would then be in tax or insurance default. Your partner (the bank) knows this, which is why they're not crazy about the idea.

That said, I agree with you about removing escrow if you're the type that knows what you are doing and always keeps sufficient reserves (I don't really get the redeploying the capital other than keeping it somewhere safe and liquid, since you'll need it every year like clockwork). I hate escrow for 3 personal reasons:

1. I have had two different instances in the past where my lender failed to pay property tax and insurance. In both cases I had to pay out of pocket until it was resolved. Both were eventually resolved but at great time & aggravation to me.

2. I do not trust the record keeping of lenders. I had a loan once sold 3 times in 2 years, and the last buyer suddenly insisted I had a $25 late fee on my account for some mystery late payment from years earlier from one of the previous note holders. When I inquired which lender & which payment (I keep records on everything), they couldn't identify it, only told me that I'd keep getting the notice it was on my account until I paid it. Coda: I told them they could kick rocks unless they identified what payment & lender it was, and that they could send me letters until I was dead and I'd sooner set $25 on fire in the middle of the lawn first. After 2 years of sending the monthly letter (they probably spent more on letters than $25), I suddenly got a letter one day that because of my excellent payment record they were granting me a courtesy convenience waiver of the fee.

3. I like paying my insurance and taxes depending on when I need deductions. Sometimes I pay just before the end of the year, other times I will pay just the minimum on insurance and/or taxes before our 2/28 deadline depending on where I am with write-offs. I don't get that luxury with escrow.

Erik Estrada · Answer

Did you check the loan documents that you signed when you took out the loan?

Michael Magno · Answer

I believe this is going to be specific to your particular mortgage documents, and how the lender wrote the mortgage.

Katie Smith · Answer

Totally understand your frustration, and it’s great to hear you’ve been so consistent with your payments and maintaining a strong equity position.

From a lender’s standpoint, even when a borrower meets general eligibility criteria (like a strong payment history and low LTV), the ability to remove an escrow account isn't always at the lender's discretion alone. In many cases, it depends on who owns the loan—such as Fannie Mae, Freddie Mac, or a private investor. Each has its own servicing guidelines that the lender or servicer must follow, and sometimes those guidelines restrict escrow waivers regardless of borrower performance.

Since you're in Texas, it's also worth noting that certain state-specific regulations or risk factors related to property taxes and insurance premiums can come into play, and some investors see escrow as a way to protect the asset and ensure those payments are made on time.

Jay Hurst · Answer

The servicer is not required by any law to remove an escrow account that has already been set up. As Chris points out, it is to their advantage for you to have an escrow account for both the reason he points out but also a higher servicing fee from Fannie/Freddie in a high tax/insurance state like Texas.  Some servicers will do it, some for free, some for a fee, but they are not required to do it.

Can lender refuse escrow removal when there is no reason for it?

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