Groups of mortgage regulators, state supervisors and attorneys general called for the Office of the Comptroller of the Currency to end proposals that could allow more national preemption of interest-on-escrow rules, citing consumer harm, legal concerns and an uneven playing field.
"The combined effect of the proposed rules would be to deny homeowners interest on funds held in escrow by national banks," CSBS and AARMR wrote "The funds at issue are trivial to trillion-dollar financial institutions, but meaningful to households."
A separate group of attorneys general and bank supervisors expressed similar concerns and called the proposals an impingement on their rights in a letter submitted through the OCC's federal rulemaking portal.
"The OCC's recently proposed rules will deprive states of their legitimate, constitutional authority to protect their consumers, including in their interactions with national banks," they said in the letter.
Implications for the mortgage industry
Twelve states representing 30% of the country's mortgages call for banks to pay interest to homeowners on funds held in escrow accounts, according to CSBS. Interest on escrow has bearing on servicing rights valuations in addition to financial, operational and legal implications.
California, Connecticut, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Utah, Vermont and Wisconsin have laws requiring a certain amount of minimum interest from escrow accounts to be paid to consumers, according to CSBS and AARMR.
While increased preemption might provide more standardization for OCC-regulated institutions, it creates "an unlevel playing field among similarly situated financial institutions engaged in mortgage servicing," according to the two groups' letter.
"State-chartered banks and nonbank mortgage servicers would remain subject to applicable state interest-on-escrow laws, while national banks would not," AARMR and CSBS wrote.
While the preemption would only affect a dozen states with such laws the concern also has drawn broader support outside of those jurisdictions.
The group of 23 attorneys general and six supervisors represents 10 of the 12 states (all except Utah and Wisconsin) and also Arizona, Colorado, Delaware, Hawaii, Illinois, Kansas, Michigan, New Jersey, North Carolina, Oklahoma, Virginia, Washington and the District of Columbia.
The legal and political backdrop
The courts' view on preemption in this area has primarily been linked to
But current Comptroller of the Currency Jonathan Gould has indicated that he views the legal question of preemption as one federal officials have a role in defending.
"If the political consensus that is necessary to support preemption erodes over time, the legal parameters are going to narrow," he told attendees at
CSBS President and CEO Brandon Milhorn said in a press statement that the OCC can't make an end-run around the courts.
"No matter how hard they try, the OCC cannot regulate around Congress and the courts," he said. "The OCC's interest-on-escrow regulatory proposals would erode 50 years of state law designed to protect consumers."
The joint letter written by CSBS and AARMR also questions whether preemption state laws that allow consumers to earn interest on their escrow accounts is in line with broader interest the Trump administration has shown in some housing affordability initiatives.
President Trump recently shed more light on how he is thinking about housing policy in a cabinet meeting broadcast online, noting that he favors steps like reducing interest rates for home purchase loans but wants to keep resale value existing owners rely on for wealth high.
Rising home values are a mixed blessing for existing homeowners with mortgage escrow accounts.
Higher property assessments can mean setting more money aside in escrow accounts that they may not earn interest on unless they are in a state with a law that gives them that right and isn't preempted. But higher home equity also can be tappable or generate more funds at sale.
