Escrow shortages

An escrow shortage is the gap that appears when the bills reprint larger than the average that was being collected. Track 5 lesson 12 splits a rate change from a capacity change. A shortage is the second of those: r did not move, P did not move, and the cash leaving the account still rose, because the tax-and-insurance leg rose.

Ilex Lending's tax rises to $5,120 and insurance to $2,148. New monthly escrow is ($5,120 + $2,148) ÷ 12 = $605.67. Old monthly escrow was $485.33. The increase is $120.33. The year's difference is ($5,120 − $4,180) + ($2,148 − $1,644) = $940 + $504 = $1,444. That $1,444 is the shortage: bills that have already come in, or will, above what twelve old deposits of $485.33 would have covered.

Two mechanical collections exist. The $1,444 can be taken as a lump, one cash figure that restocks the reserve. It can also be spread, added to the new monthly escrow so that the shortage is collected across a stated number of months on top of the new $605.67 average. Both are mechanisms for restocking a reserve whose average was too low. Neither is a rate. Neither is a judgment about the house.

The PI line is still the installment formula. The escrow line is now a different formula: new annuals divided by 12, plus whatever spread collection the shortage is running. A statement that prints one new total is hiding lesson 1's split again, this time with the non-loan leg as the moving part.

A shortage is not interest. It is a reserve that was collected on last year's bills, measured against this year's bills. Rate did not do this.