The article from Jazz say it well...
Escrow is to 'protect' the mortgage holder. If the person did not pay the insurance and the house burned down they lose.. if the taxes are not paid and they repo the house.. well, they lose again...
Also remember the vast majority of people we are talking about... they can't save money for ANYTHING... so when it comes to the year end and they have not savings and their CCs are maxed out for Christmas shopping... where is the money coming from
I argued about the fee to be without escrow and they said it was to monitor the property... we send in the insurance rider and they 'check' to see taxes are paid... sounded reasonable at the time...