Most homeowners rarely think about the portion of their monthly mortgage payment that flows into a separate account managed by their loan servicer. That money sits in an escrow account, building up over months until property tax bills and homeowners insurance premiums come due each year. In 12 states and two U.S. territories, banks were legally required to pay borrowers interest on those funds while the money waited to be disbursed on the homeowner's behalf.
Two new federal rules issued by the Office of the Comptroller of the Currency on May 15, 2026 and effective since June 18, 2026, have effectively removed that guarantee for borrowers whose mortgages sit with national banks or federal savings associations. Ten state attorneys general, led by Oregon and New York, are now suing to block the changes in U.S. District Court in Oregon, arguing the federal regulator overstepped its authority under the Dodd-Frank Act.
The Office of the Comptroller of the Currency finalized two rules on May 15, 2026, both of which took effect on June 18, 2026. The first rule codifies that national banks and federal savings associations have broad authority over their mortgage escrow account terms and conditions. That includes whether to pay borrowers interest on the funds held in those accounts or to charge fees related to escrow account administration.
The second rule is a formal preemption determination, concluding that federal banking law overrides the interest-on-escrow statutes in 14 states and territories. The affected jurisdictions are New York, California, Connecticut, Maine, Maryland, Massachusetts, Minnesota, Oregon, Rhode Island, Utah, Vermont, Wisconsin, and the U.S. territories of Guam and the U.S. Virgin Islands, according to the OCC's preemption bulletin.
About 80% of mortgage borrowers have an escrow account, which collects monthly payments toward property taxes and homeowners insurance premiums, Lereta reported. Those accounts can hold thousands of dollars at any given point, because property taxes and insurance bills are typically paid only once or twice annually. Americans face major decision after housing market news Zillow reveals major housing market shift Realtor.com, ATTOM flag alarming housing risk Mandated rates vary by state, with New York and California requiring a 2% floor, Rhode Island requiring the same interest rate the servicer pays on its regular savings accounts, and Maryland pegging them to one-year Treasury yields, CNBC reported.
On a $5,000 escrow balance, a 2% state minimum yields about $100 annually, roughly $80 more than the same funds would earn at the current 0.38% national savings average tracked by the FDIC. In a Treasury-linked state such as Maryland, where the mandated rate is set each January against the one-year Treasury yield, the same $5,000 balance would earn roughly $175 at Maryland's 2026 rate of 3.51%. However, a Bank Policy Institute working paper examining mortgage data from 2018 through 2024 found that lenders largely offset mandated interest payments by raising origination fees, with the effect strongest among lower-income borrowers.
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