What does the term 'escrow account' refer to in mortgage servicing?

The term 'escrow account' refers to a special account set up by lenders to hold funds for specific purposes related to the mortgage. In mortgage servicing, this account is typically used to accumulate and manage funds for property taxes and homeowners insurance. Each month, a portion of the borrower's mortgage payment is deposited into the escrow account. When property taxes and insurance premiums are due, the lender uses the funds from this account to pay those expenses on behalf of the borrower. This arrangement helps ensure that these critical payments are made on time, which can protect the lender's security interest in the property and help the borrower avoid potential pitfalls like tax liens or lapses in insurance coverage.

The other options relate to different types of accounts that do not fit the definition of an escrow account. For example, an account holding loan applications is more aligned with the loan origination process, while a savings account for borrowers or an account for down payments only do not pertain to the specific purpose and function of an escrow account in the context of mortgage servicing.