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.
What the Office of the Comptroller of the Currency changed
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.
How much interest homeowners could lose on escrow balances
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.
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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.
Borrowers in the highest income quartile experienced no statistically significant impact from the mandates.
10 state attorneys general sue to block the OCC escrow rules
On Aug. 11, 2026, 10 state attorneys general filed a federal lawsuit in the U.S. District Court for the District of Oregon to vacate both rules.
Oregon Attorney General Dan Rayfield and New York Attorney General Letitia James are leading the coalition, which also includes California, Connecticut, and six other states.
The lawsuit alleges that the OCC’s rules violate the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Administrative Procedure Act.
Letitia James, the New York attorney general who is co-leading the lawsuit alongside Oregon, argued that the rules will make an already strained housing market worse for borrowers who have no choice but to park money in escrow accounts.
At a time when homeownership is more expensive than ever, the Trump administration is trying to make it even more costly with these unlawful rules. Big banks and mortgage lenders should not be able to force homeowners to lock away significant amounts of money without paying interest.
The states argue that Congress placed strict limits on the OCC’s authority to preempt laws that protect consumers at the state level after the 2008 financial crisis, according to Attorney General James’s press release announcing the filing.
What to check if your mortgage includes an escrow account
The legal fight could take months or years, and because the rules are already in effect, escrow terms may already have shifted in the 14 affected jurisdictions.
The scope of who is covered depends on the type of bank servicing the mortgage. The OCC rules apply to loans held by national banks and federal savings associations, while state-chartered institutions fall outside their reach.
Recent mortgage statements and servicer disclosures typically identify which category a loan falls into.
For borrowers trying to determine whether the change has already touched their account, the annual escrow analysis is the standard reference document.
It shows whether interest was credited to the escrow account during the last cycle and at what rate, making it the clearest paper trail of any shift in a servicer’s practice.
Where interest has stopped being credited, servicers are generally the party in a position to explain the change and confirm it in writing.
Escrow interest is now optional in 14 jurisdictions
For homeowners in the 14 affected jurisdictions, the immediate question is not who wins the lawsuit but what servicers have already done.
National banks and federal savings associations can now stop paying interest on escrow balances, and some may have already changed the terms of new or existing accounts.
Borrowers won’t necessarily see a line-item change; the lost interest may show up as a slightly higher rate at renewal, a fee adjustment, or nothing visible at all.
Related: Homeowners face growing home insurance threat beyond cost
