Tax Data Errors Among Top Consumer Gripes

April 12, 2016

Inaccurate tax data is the largest source of frustration reported by home owners with the origination, closing, and servicing of their mortgage, according to the 2015 Annual Consumer Mortgage Experience report released by the Consumer Financial Protection Bureau.

Escrow amount-related issues including inaccuracies of annual tax estimates and the settlement funds required at closing were the top complaints by home owners, according to the report.

The lack of standardization in origination and underwriting is contributing to the problem, says Dominque Lalisse with data provider CoreLogic.

“From the moment a home is put on the market until the time the new home owner’s mortgage is being serviced by the lender, up to six annual tax estimates are being completed with different levels of accuracy,” Lalisse says.

For example, the real estate agent includes property tax information on the home listing. The loan originator will also gather such data to provide a loan estimate. That tax information will then be validated again by an underwriter to calculate the borrower’s debt-to-income ratio and estimate the amount needed for closing. The closing agent also may gather property tax information for the closing documents. Finally, servicers gather it too to set up escrow accounts.

"If the amount is significantly underestimated, the home owner might face financial hardship which could have been avoided with a more accurate estimate early in the process," Lalisse says.

Indeed, some home owners immediately after closing find their annual escrow payments change by $250 or more due to inaccurate tax estimates, the Mortgage Daily News reports.

Of the 170,000 consumer complaints CFPB fielded over 2015, about 32 percent were due to loan servicing, payments, and escrow accounts and about 4 percent related to the settlement process and costs. Both of those are directly tied to the accuracy of property tax information throughout the closing process, the Mortgage Daily News reports.

Source: “Inaccurate Tax Data a Source of Homeowner Frustration,” Mortgage News Daily (April 11, 2016)