Mortgage escrow accounts were developed more than fifty years ago when many Americans started losing their homes to foreclosures, mostly due to late tax payments. Homeowners were burdened to come up with large, lump sums of money at tax time that was often too difficult to pay. To ease the burden, lenders agreed to collect the taxes in small monthly payments made along with the mortgage payment. In 1934, this became standard procedure when the government stepped in and made it mandatory that lenders manage escrow accounts on all Federal Housing Administration (FHA) mortgages.

Mortgage escrow accounts are made to protect the homeowner by making sure that all insurance premiums and property taxes are paid in a timely manner. Escrow guarantees that there will always be enough money available to pay these bills on time. This way, the homeowner can avoid overdue taxes and insurance.

The U.S. Department of Urban Development (HUD) has administered the Real Estate Settlement Procedure Act (RESPA) to regulate all escrows and include laws for all lenders to follow when managing and funding the borrower’s escrow account. All lenders must maintain their escrow accounts and comply with federal law, with the interpretations set by HUD. Lenders are required to release itemized statements of escrow accounts to all borrowers yearly. While most lenders already issue these statements, the 1990 Housing Bill will ensure this practice.

Although borrowers are not required to maintain an escrow account with their lender, the lender may require it of the borrower. Escrows are made to protect the lender and as well as the borrower. Borrowers who do not understand the purpose of the escrow account, or those who have questions or other concerns, should consult with their lenders right away. It’s important for the borrower to understand escrow completely in order to be aware of all the benefits.

Escrows reassure homeowners that their mortgage related bills will be paid on time by automatically budgeting the borrowers insurance and tax obligations over a years time. This way homeowners can rest assured that their obligations are taken care of without having the burden of coming up with several large, lump sums of cash each year. In addition, it’s comforting that homeowners don’t have to calculate any unexpected increases in their insurance premiums or taxes. It is the lender’s responsibility to allow any potential increases in the payments, therefore covering the bill, without charge to the borrower, if there are not enough funds in the mortgage escrow to pay the increased bill. Many lenders will pay for the insurance and taxes when the payments are due regardless if the money has been collected by the homeowner at that time. In 1989, lenders advanced an estimated $600 million to homeowners to avoid penalties and any risk of not paying their insurance and taxes on time.

Escrow accounts have made it possible for mortgages to lower their rates and have lower down payments while protecting the interests of the investors. This has made the home mortgages more attractive as a secure investment, allowing escrow to lead the way to a stronger home mortgage market. Escrow accounts also prove beneficial to local governments by saving them money by using a less expensive and more efficient way of collecting taxes. Municipalities will only need to collect from a few hundred lenders instead of millions of homeowners.

For borrowers who decide to refinance or transfer their loan to another lender, the new lender will take on the responsibility of managing that borrower’s escrow account. The new lender may review the borrower’s escrow account to be certain that the funds are being collected sufficiently enough to cover all payments. Should the collected amount need readjustment, the new lender will notify the borrower of the change in monthly payments. Lenders in some states may pay interest on the money held in an escrow account although the RESPA does not require it.

Some lenders may ask borrowers to keep an excess balance that is often called a cushion, in their escrow account to cover potential increases in the borrowers insurance and tax bills. Many lenders may ask that the borrowers fund their cushion to the maximum amount of one-sixth of the total amount paid each year. If for some reason a lender asks the borrower to keep more than one-sixth in the escrow cushion, the borrower has the right for an explanation. If the borrower is not satisfied with the explanation, then they may file a complaint with HUD.

Home loan fraud is not an item of the past, but it is still costing people their homes, if not more today than ever. Home loan fraud has been on the rise since the 1990's despite the most recent federal disclosure laws. Take into consideration these two examples of home loan fraud that occurs when lenders misrepresent themselves or the terms of a loan to trick homeowners into default.

Bill is a 75-year-old widower who receives a notice that he is about to default on his mortgage. Soon after he receives this notice, he is visited by a man who represents himself as a foreclosure advisor and convinces Bill to sign a loan contract with him in order to save his home. The loan payments will me much higher than Bill can afford to pay and before long he has accepted more loans from the same lender. Once Bill is unable to meet the payments, he will default on the loans and the advisor will foreclose on Bill’s property and force him out of his home and sell all of his possessions.

In Florida, a door-to-door contractor convinces Maggie, a 62-year-old woman into taking out a second mortgage on her house in order to be able to afford repairs after a flood damaged her home. The contractor tells Maggie that she qualifies for a federal grant that will help her repay the loan. Unbeknownst to her, the federal grant does not exist and Maggie will default on the loan and lose her home.

Home loan frauds can be presented in many ways, ending in the same results, with somebody misrepresenting themselves and lying to you for the purpose of taking your home from you.

You can avoid being a victim of home loan fraud and the nightmares that follow by conforming to these simple rules:

1. Be cautious of people representing themselves as lenders who call you up on the phone or who show up at your door uninvited. These people will be very friendly and talkative and try their best to convince you how great and caring they are. Do not take the bate.

2. Never sign a document that you don’t understand. Some fraudulent lenders will quickly go over a document, by summing up some of the details to save you the time of reading it yourself, or to move the process along more quickly. If you don’t read or understand the document, consult with an attorney or other financial advisor of your choice to look over the document and to clarify any details.

3. Never let anyone pressure you into signing a document you are suspicious about or that has blank spaces that can be filled in later. An honorable lender will allow you time to think over the offer before you commit.

4. If your home is in dire need of repairs or improvements and you are strapped for cash, there are many programs available to help you with these without the risk of losing your home. These fraudulent lenders will try to convince you that their offer is the best way to go if you want to save a lot of time and money. They may also partner with a contractor just as deceitfully as they are in order to convince you that you are getting a great deal.

Although most senior citizens make prime targets for home loan fraud, it can happen to anyone, anywhere. These deceptive lenders will even target homeowners with poor credit, minority communities and low-income neighborhoods. Wherever there’s a homeowner, there is the possibility of coming face to face with a fraudulent lender.

These fraudulent lenders will reach their targets in a number of ways, such as: sending out mail to a certain zip code or area, searching public records to find homeowners who are behind or their taxes or mortgage, and for those homeowners who are in the process of filing a bankruptcy. The most common way these deceitful lenders reach their target is by phone. Offering their wonderful services to you with no obligation, if you allow them to come by your house and speak with you for a few minutes. Over the phone, they may make you feel like this is your lucky day, when in fact, they are wolves in sheep clothing.

Imagine a 7,900-square-foot lakefront mansion in Las Vegas with six bedrooms, an in ground pool and an illustrious landscape available for purchase at a meager one million dollars. Sound impossible? Not if you look into foreclosure properties for sale. Homes like these million dollar mansions can be found all over the country through local banks after the owners have defaulted on their mortgage. Buying a million dollar or more home that is in the foreclosure process will not only save a great amount of money, but some investors agree that buying a home in foreclosure is a much easier process than a normal home sale. This way there are no prices to haggle over or move in dates to set. When you buy it, it’s yours.

With foreclosures running up to 1.27% of all mortgage loans, according to the Mortgage Bankers Association, the best place to look for a million-dollar mansion to buy may be a bank or on the court house steps. In the first five months of 2004, over 113,000 million dollar mansions came onto the market as foreclosures. This is an increase of 37% from the previous year, according to Foreclosure Free Search.

As interest rates rise, mortgage rates are more likely to inflate, thus putting pressure on financially exhausted homeowners that are barely making ends meet already. More people have been taking out loans that have been more than they could possibly afford, while maintaining a certain lifestyle, or by trying to maintain a certain lifestyle. While the lender will calculate the amount that the borrower should be able to repay, according to the borrowers yearly income, this amount can often be more than the borrower can actually afford.

A million dollar mansion foreclosure can happen to the best of people, in the best neighborhoods, in any price range. These foreclosures can and do occur in the same proportions as do other homes. A million-dollar mansion foreclosure can sometimes be a surprising steal, mostly because some lenders don’t want to price their properties to move fast. There are deals out there for those that are patient enough to look for them.

There are also disadvantages of buying a million-dollar foreclosure property as well, because most of these homes come onto the market due to a financial hardship. Sometimes the former owners become bitter from the loss of their home and sabotage the home by damaging or removing doors, appliances or light fixtures. Some of these homeowners may go as far as pouring concrete down the toilets or punching holes into the walls of these million dollar homes. Sometimes the financially strapped homeowners allow the homes to fall into disrepair, because the basic foreclosure can take about four months. This allows ample time for the lawn to become seriously overgrown and a slimy green pool to grow.

There are many ways to buy a million-dollar mansion in foreclosure. On average, at least 10 properties priced $1 million and more, will fall into default every year, but only a fraction of these properties will be sold at auctions. Most of these million dollar mansions are actually sold in a pre-foreclosure sale to buyers who search legal postings for Notices of Default. All buyers will need to be financially prepared to make an offer on the pre-foreclosure home immediately and have the down payment already in hand. These buyers also need to be prepared to deal with the emotional property owners who are losing their homes and who may not want to leave willingly. There may also be furious tenants to evict, which the buyer should be readily prepared to do.

Laws can vary from state to state, but home owners normally have up to four months to pay their debts to avoid foreclosure on their property. If the homeowners can’t pay their debt in this time frame, then the lien holder of their property can force their home to be auctioned off, normally on the steps of the courthouse. These auctions are advertised in newspaper classifieds and are available for anyone to buy, so long as those buyers show up with a check of at least 10% of the anticipated purchase price. If buyers don’t have this kind of money readily available, then most often a bank will be the successful bidder. Million dollar or more foreclosure properties can be also be found through brokers who specialize in Real Estate Owned properties, or REO’s. These properties can be found by visiting the offices of these brokers or by searching the internet.

What is PMI? PMI, or private mortgage insurance, is an insurance that home buyers are required to purchase if their down payment is low. Private mortgage insurance is usually required of home buyers whose down payment is 20 percent or less of the property’s sale price or appraised value. This insurance was created by private mortgage insurers, and was created to provide protection for the lender in the case that the home buyer should default on the loan.

Private mortgage insurance has helped create millions of new homeowners by allowing people to buy homes with much smaller down payments than had previously been accepted. As home prices continue to soar, the ability to purchase a home with a small down payment has become even more important. Private mortgage insurance allows potential homeowners to buy a home sooner, with even just a 5 percent down payment. Also, private mortgage insurance can help you qualify for a greater number of home loans.

The cost of private mortgage insurance varies according to the down payment and mortgage loan, but it typically equals approximately one half of one percent of the total amount of the loan. But how exactly is private mortgage insurance calculated? Let’s assume you bought a house for $100,000, for which you put set down a 10 percent down payment. Your lender will multiply the remaining 90 percent by .005 percent. The result, $450, is your annual private mortgage insurance, which is divided into monthly payments.

After a few years of paying down your mortgage loan, you should be able to stop paying private mortgage insurance. You should keep track of your payments and contact your lender when you reach 80 percent equity so that your private mortgage insurance can be cancelled. In 1999, a new law, the Homeowner’s Protection Act, was passed that requires lenders to notify you, the buyer, how many months and years it will take for you to pay the 20 percent of your principal. However, it is still a good idea to keep track of it on your own.

This same law also allows lenders to make certain buyers continue their private mortgage insurance, all the way to 50 percent equity. This requirement applies to buyers classified as high risk borrowers. Some Federal Housing Administration loans may even require that home buyers acquire Private mortgage insurance through the lifetime of the loan.

If the idea of paying private mortgage insurance for years sounds unappealing, you’re not alone. Over the years, new ways of avoiding payment of the private mortgage insurance—even when you don’t have the 20 percent down payment available—have emerged. One strategy commonly employed to avoid paying private mortgage insurance is to pay more interest on your mortgage loan. Some lenders will waive the private mortgage insurance requirement if the home buyer agrees to pay a higher interest rate on their mortgage loan. One advantage to this strategy is that mortgage interest becomes tax deductible.

Another way to avoid paying private mortgage insurance is by using the ’80-10-10’ loan strategy. This strategy involves taking on two loans and putting down a 10 percent down payment to purchase a home. One loan finances 80 percent of the mortgage, while the second loan finances the remaining 10 percent of the sales price. The second mortgage—the one that covers the 10 percent—has a higher interest rate. But since the amount of the loan is low, the interest charges are relatively easy to pay off. Under this plan, the mortgage interest is also tax deductible.

You may also be able to cancel your private mortgage insurance if you can prove that your home has increased significantly in value. If the value of your home has gone up, you may already have 20 percent (or more) of the equity you need to cancel your private mortgage insurance. You can submit evidence of this to your lender, but the process is slow. Expect to wait up to two years for the lender to make a decision.

You may be required to continue paying private mortgage insurance, however, if you have a poor payment history, or if your credit record reflects any liens placed against your property. You should speak to your lender to see how any changes in your credit record may affect your use of private mortgage insurance.

In the recent past, with the prices of homes on the rise, complemented by falling interest rates and a need to convert one’s accumulated home equity into expendable funds, millions of people have got the opportunity to refinance the mortgage on their residence. Often, this has worked to their advantage since refinancing has resulted in a vastly lower interest rate and lower monthly mortgage payments, thereby letting homeowners spend or save a certain part of their incomes that are no longer repayments to their mortgages.

In order to refinance, homeowners sometimes borrow more than they need to pay off an earlier mortgage and so cover the transaction costs of refinancing, and then liquefy the equity they have put together in their homes. With these funds, they make home improvements, repay older debts and buy goods, services or assets they can’t otherwise afford.

Why you should refinance: First, you need to take a good look at your current interest rate to do your best for your funds. It is well worth refinancing your current mortgage if your new interest rate is over ½% to 5/8% your current interest rate. But if you want to lower your closing costs as far as possible, see that your current rate is at least 1% lower.

How much can refinancing save you? This depends on several factors relating to your present mortgage situation. If your interest rates are low, it can bring in substantial savings to your funds, perhaps even thousands of dollars! And when rates rise, refinancing from a conventional loan to a variable rate loan, you can stand to gain substantially.

Benefits of refinancing: Choosing to refinance a home mortgage is a tough decision and needs careful consideration of one’s costs and the benefits that will accrue from refinancing. You will realize that when interest rates on mortgages fall below the rate on your existing loan, it’s a good idea to refinance. At a time like this, you need to look at the prospective after-tax savings from lower monthly payments if you were to take a lower-rate loan and compare it with the after-tax expenses of refinancing. This would include mortgage fees or points, application and appraisal fees. As the loan is repaid, the savings from your lower interest payments begin to accumulate. As a result, the funds that would have been saved due to refinancing must be discounted at the present rate and compared with the transaction or closing costs.

People usually go in for refinancing to save money, but there are other reasons also, such as:

Reducing your monthly loan installment: If you reduce your monthly mortgage installments, you can end up refinancing your existing loan at a lower rate of interest. This can save you funds in the long run.

Consolidating your debts: Perhaps you prefer to refinance to consolidate your debts (e.g. a student loan or a loan on a credit card) and prefer paying a low-interest loan rather than a high-interest one. Now, you can clear all your outstanding debts and replace them with just one low-cost cheaper monthly payout.

More tax deductions: If you have lower interest rates, it means smaller interest deductions on Schedule A.

Mortgage interest: You are allowed to deduct interest on a debt of up to $1 million incurred to buy your house and one more home. Also deductible is interest on up to $100,000 of home equity loans due to these two residences. If you refinance a mortgage, the interest on this loan is deductible to the limit of old mortgage plus $100,000.

Points: The interest charges you pay up-front or points are really interest that’s pre-paid and must therefore be deducted proportionately during the tenure unless you have purchased or improved your existing principal property.

Also, if you have bought a holiday home or real estate as an investment, points should be deducted proportionately over the loan term. Or, if you have refinanced a mortgage on which you had been reducing points proportionately, you could stand eligible for a tax bonus. Now, you can subtract any part of the points for the mortgage already paid off that you had not yet deducted since the year of refinancing.