What is the purpose of an escrow account that most mortgage lenders require, and what expenses does it typically cover?

After closing, most conventional loans (and virtually all FHA and VA loans) require an ongoing escrow account managed by the mortgage servicer. A portion of each monthly payment is deposited into escrow to cover annual property taxes and homeowners insurance premiums. When those bills come due, the servicer pays them directly. Lenders require escrow accounts to protect their collateral — if taxes go unpaid, the government can place a lien that supersedes the mortgage, and if insurance lapses, the property is unprotected against fire or other losses. Borrowers with 20% or more equity on conventional loans can sometimes waive the escrow requirement, though lenders may charge a fee.