According to RESPA, how much cushion can lenders collect at the time of closing for an escrow account?

RESPA, or the Real Estate Settlement Procedures Act, governs various aspects of mortgage lending, including the handling of escrow accounts. When it comes to the collection of a cushion for an escrow account at the time of closing, lenders are permitted to collect no more than two months' worth of payments. This cushion is intended to cover fluctuations in costs associated with property taxes and homeowners insurance, ensuring that there are sufficient funds available to make timely payments on behalf of the borrower.

The two-month cushion is important because it helps protect both the borrower and the lender from potential shortfalls in the escrow account. By establishing this limit, RESPA aims to prevent excessive accumulation of funds in the escrow account, thereby ensuring that borrowers are not overcharged while still maintaining enough reserve to cover future expenses.

This regulation reflects a balance between the needs of the lender to mitigate risk and the rights of the borrower to not be unduly burdened with excess reserves.