What changing federal regulations may mean for your escrow account
The dispute could determine whether states retain meaningful power to impose consumer protections on federally chartered banks.
Ten states are suing the Office of the Comptroller of the Currency over changes in how banks handle mortgage escrow interest. Billions of dollars of consumer funds are at stake.
If your mortgage company collects money each month for property taxes and homeowners insurance, that money generally goes into an escrow account until the bills come due.
Whether you earn interest on that money may depend on where you live and what kind of bank holds or services your mortgage.
- Check your mortgage statement. Look for the escrow balance and any line showing interest credited to the account.
- Check your state law. Several states require lenders to pay interest on qualifying escrow balances, although the rate and coverage vary.
- Find out whether your lender is a national bank. National banks usually have “National,” “National Association” or “N.A.” in their legal names and are regulated by the Office of the Comptroller of the Currency.
- Don't assume your state's rule applies. The OCC now says national banks can disregard a number of state escrow-interest requirements. Ten states are challenging that position in court.
- State-chartered banks may be different. The OCC's preemption rules apply to national banks, not automatically to every mortgage lender or servicer.
- Keep an eye on changes. If your lender previously paid escrow interest and stops, check your annual escrow statement and ask the servicer for an explanation.
James R. Hood
How much could be at stake?
At a 2% annual interest rate:
| Average escrow balance | Approximate annual interest |
|---|---|
| $3,000 | $60 |
| $5,000 | $100 |
| $7,500 | $150 |
| $10,000 | $200 |
For one household, that may not be a huge sum. But it is still interest earned on money the homeowner owns, and across large mortgage portfolios the amounts can add up quickly.
Bottom line: If you live in a state with an escrow-interest law, don't assume the current rules are settled. The legal fight over whether national banks must follow those laws is still underway.
