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MortgagePoint » Your Trusted Source for Mortgage Banking and Servicing News 22 June 2025 S P O N S O R E D C O N T E N T REDUCING ESCROW FALLOUTS: A SIMPLE SOLUTION TO PREVENT FAILED CLOSINGS B y M I C H A E L K R E I N I n recent months, escrow fallouts and contract cancellations have reached an all-time high in the mortgage and real estate sectors. Reports indicate that up to 20% of escrows fail to close, causing significant disruptions to buyers, sellers, lenders, and real estate agents. According to the National REO Brokers Association's (NRBA) research department and reports from their members who handle high transaction volume, nearly half of these fallouts are due to buyers failing to qualify once the homeowner's insurance premium property taxes are factored into their monthly payments. The root cause of this issue can be traced back to the way prequalification letters are issued by lenders. Unfortu- nately, many prequalification letters— which are often mistaken for pre-ap- provals—do not provide the specific, detailed breakdowns needed to truly as- sess a buyer's ability to close on a home. Without factoring in the full monthly housing costs, including PITI (principal, interest, taxes, and insurance), buyers are left to discover—often at the last minute—that they can no longer qualify for the loan due to previously underes- timated cost of homeowner's monthly insurance premiums. This problem, while common, is eas- ily avoidable with a proactive approach that ensures clear communication and accurate cost assessments from the beginning of the transaction. Here are some ways to reduce the number of failed escrows and prevent last-minute surprises that lead to contract cancellations. The Problem: Prequalification Letters and Homeowner's Insurance I n the rush to get buyers prequalified, many lenders issue generic prequalifi- cation letters that fail to include critical details. The most common shortcom- ing? The lack of a PITI breakdown. A typical prequalification letter may state that the buyer qualifies for a loan amount of $300,000. However, without a specific breakdown of the estimat- ed property taxes and homeowner's insurance, the buyer's actual monthly payment obligation is left unclear. When it's time for the buyer to secure homeowner's insurance (usually done at the last minute, just before closing), the quote often comes in higher than ex- pected, leaving the buyer in a situation where they can no longer afford the to- tal monthly payment. This is especially problematic as homeowner's insurance rates have risen dramatically in recent years, further exacerbating the issue. For example, a buyer may be pre- qualified for a $400,000 loan with the assumption that their monthly mort- gage payment will be $2,503. But when the buyer goes to secure a homeowner's insurance policy, the actual premium might be $3,800 annually, not the $2,000 originally estimated. This addi- tional cost raises their monthly payment by $150, pushing the buyer's debt-to- income ratio (DTI) beyond acceptable limits, and, in many cases, rendering the buyer ineligible to close on the home (not to mention increasing their closing costs for the impounds by the addition- al amount). These items together can either disqualify the purchaser or make an already skittish buyer back out. The nation's largest and most successful REO broker for many years, M I C H A E L K R E I N has personally listed and sold over 25,000 sin- gle-family residential units over the course of his career. Krein was also the owner of numerous multi-office brokerage compa- nies, both independent and franchised, including owning regions for national brands. He also serves as President of the National REO Brokers Association (NRBA), CEO of RIO Software Solutions, provider of RIO Genesis Software, and Managing Partner for House Karma, a digital ecosystem created to facilitate affordable homeownership and revitalize neighborhoods.