Section 10 of RESPA prohibits the lender from maintaining no more than how many months of cushion in escrow for anticipated charges?

Section 10 of the Real Estate Settlement Procedures Act (RESPA) sets specific guidelines for the management of escrow accounts, particularly regarding the cushion that can be maintained by lenders to cover anticipated charges, such as property taxes and insurance. The regulation allows lenders to collect a maximum of two months' worth of payments as a cushion in an escrow account. This is intended to ensure that there are sufficient funds to cover any unexpected increases in these charges without overburdening the borrower with excess funds held in escrow.

This cushion is important for both the lender and the borrower. For the lender, it provides a safety net for changes in payment amounts due to variations in property tax assessments or insurance premiums. For the borrower, maintaining a reasonable cushion helps prevent difficulties in making timely payments if there are sudden increases in charges.

In this context, the answer about maintaining no more than two months of cushion in an escrow account aligns with the regulatory intent to balance the lender's need for security with the borrower's right not to have unnecessary funds held in the escrow account. The other options provided exceed this two-month limit, which is not in compliance with RESPA guidelines.