Ever wonder what the aggregate adjustment is under the “Impound” section of the Settlement Statement. Well, wonder no more.

The Real Estate Settlement Procedures Act (Regulation X) protects consumers when they apply for and have a mortgage loan. Section 1024.17, entitled “Escrow Accounts” limits payments to escrow accounts upon creation. Specifically, “[a]t the time a servicer creates an escrow account for a borrower, the servicer may charge the borrower an amount sufficient to pay the charges respecting the mortgaged property, such as taxes and insurance, which are attributable to the period from the date such payment(s) were last paid until the initial payment date. The “amount sufficient to pay” is computed so that the lowest month end target balance projected for the escrow account computation year is zero (-0-) (purposefully omitted). In addition, the servicer may charge the borrower a cushion that shall be no greater than one-sixth (1/6) of the estimated total annual payments from the escrow account.” 12 CFR 1024.17 (c)(1)(i).

The simple way to think about this is that a lender must ultimately collect escrow amounts at closing for each month they will not have a payment, plus a two (2) month cushion. For example, if a closing were occurring in March, a lender would likely collect six (6) months of taxes at closing. One month for each month they won’t have payment (January, February, March and April), plus a two (2) month cushion. The aggregate adjustment is typically a credit provided to the buyer on the settlement statement, which means the amount collected exceeded what was allowed pursuant to the above regulation.

Next time you see that aggregate adjustment on the settlement statement, the mystery has been solved.