Office of the Comptroller of the Currency eyes escrow change

The Office of the Comptroller of the Currency is looking for feedback on two proposals asserting preemption in interest on escrow accounts used in real estate lending.

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One proposal from Comptroller Jonathan Gould’s office states that “national banks and federal saving associations” have established rights in this area and the other asserts preemption of around a dozen states’ conflicting laws.

The two proposals appear positioned to resolve conflicting court decisions in this area and could have a large impact on dynamics in the mortgage servicing rights market, where escrow affects valuations, if approved. 

Specific and broader powers OCC seeks to assert

The OCC seeks to preempt laws that affect regulated institutions’ right to “pay interest or other compensation on funds placed on real estate escrow accounts” or “assess fees in connection” with these.

“Specifically, the proposed preemption determination would conclude that federal law preempts a New York interest-on-escrow law,” the OCC said, adding that 11 other states with “substantively equivalent terms” would also be preempted.

Gould has been advocating for federal preemption powers.

“If the political consensus that is necessary to support preemption erodes over time, the legal parameters are going to narrow,” he told attendees at The Clearing House’s annual conference.

Feedback on the proposals will be open for 30 days after they are published in the Federal Register.

The strong stance on preemption under President Trump stands in contrast to the Biden administration, which had steered the Supreme Court away from a definitive determination on the matter in the case Cantero v. Bank of America.

State and federal groups have been divided on the issue.

“Courts have already held that the National Bank Act does not preempt state consumer protection laws requiring interest on escrow accounts. Now, frustrated by losses in the courts, the OCC has ignored the affordability crisis in housing and attempted an end run by regulation,” Brandon Milhorn, president and CEO of the Conference of State Bank Supervisors, said in a statement. “The OCC’s proposed rule would take interest out of the pockets of homeowners and give it to national banks.”