New Escrow Rules To Eliminate Interest: What Homeowners Stand To Lose

Last Tuesday, 10 states filed a lawsuit suing the Office of the Comptroller of the Currency in order to block new rules regarding escrow payments. 

The collection of attorneys general, led by Oregon, argue that two newly enacted provisions that would allow banks to sidestep state laws requiring them to pay interest on mortgage escrow balances are unnecessary.

By bringing the fight to the OCC, the states aim to preserve their ability to ensure residents receive fair compensation on funds held by financial institutions.

But how much money are we really talking about here?

Understanding the lawsuit

When you buy a home with a mortgage, in addition to paying the principal and interest payments each month, your payments also include funds that go into an escrow account.

That account is set up to pay your homeowners insurance premiums and property taxes, as well as mortgage insurance if you have it. 

About 80% of mortgage holders have an escrow account, according to Lereta, and currently, 14 states and U.S. territories have laws requiring interest be paid on those escrow balances.

Along with Oregon, New York, California, Connecticut, Maine, Maryland Massachusetts, Minnesota, Rhode Island, and Vermont jointly filed the complaint on Aug. 11, 2026, challenging new regulations that they contend undermine local consumer protection laws. 

The legal complaint targets two specific rules: the Escrow Powers Rule and the Preemption Rule.

Together, they operate as a coordinated “twin-regulation” framework designed to strip states of their authority to enforce interest-on-escrow laws against national banks and federal savings associations.

“When Congress amended federal laws governing escrow accounts for certain types of mortgages nearly twenty years ago, it made clear that national banks operating such accounts must pay interest as required by applicable state or federal laws,” the lawsuit reads in part. 

The lawsuit labels the agency’s moves as “arbitrary and capricious” and insists that the OCC failed to produce any evidence of market disruption or operational hardship under current state regulations. 

How much interest homeowners could lose on their escrow 

The reality is, if you’re earning interest on your escrow, you’ve likely never even noticed it’s there.

“Borrowers usually do not realize that their escrow can earn interest until they see a tiny line item in their annual escrow analysis,” explains Cody Schuiteboer, president and CEO of Best Interest Financial, to Realtor.com®.

“Even when they see that line item, they barely register it in comparison with taxes and insurance totals in the statement.”

The mortgage interest-on-escrow laws and their specific rates vary across the ten plaintiff states involved in the lawsuit, meaning the amount of money potentially lost can be wildly different. 

For instance, Rhode Island and Connecticut require interest at a rate equal to the rate paid on a regular savings account. As of 2026, this translates to interest payments significantly below 1%.

Meanwhile, Massachusetts allows the interest rate to be determined directly by the lender.

Among the states in the lawsuit, Maryland’s rate is perhaps the most generous. Lenders pay annual interest on escrow balances at a rate tied to the yield on one-year U.S. Treasuries, which currently sits at 3.99%. 

Now, escrow accounts can hold thousands of dollars at any given time, because property taxes and insurance bills are typically paid only once or twice annually, and again, vary by the rates of each state. 

And still, in doing the math, one can see the huge gaps in payouts. 

Let’s say, hypothetically, a homeowner has $10,000 in their escrow account. At 4% interest rate, the Maryland homeowner would earn $400 annually. Meanwhile, the current average rate on traditional savings accounts is 0.63%, according to Bankrate.

At that rate, a homeowner in Rhode Island or Connecticut would bring in just $63.00 in interest over the course of a year. And that’s more in line with the standard, says Schuiteboer.

“We are talking about $3-$50-100 per year of interest on the standard escrow buffer, depending on how much of a balance there is and how big the tax and insurance amounts are,” he says. 

“At the household level, this is real money, although it does not impact people’s behavior.”

The other side of the argument

In February, three months before the OCC enacted their new rules, The Bank Policy Institute, a nonpartisan public policy, research, and advocacy group, released a report focused on escrow interest.

Through their research, they concluded that when state laws require lenders to pay interest on escrow balances, lenders typically offset these additional administrative and interest expenses by increasing upfront origination fees.

They argued that, in the absence of interest-on-escrow requirements, banks can offset escrow administration costs by reinvesting escrow funds, which allows borrowers to effectively amortize those costs over the life of the loan.

Schuiteboer is skeptical. 

“I would want to see the data first to believe it. In reality, the escrow interest costs the bank practically nothing compared to the origination fees, so there is no motivation for the bank to reduce the fees to the borrower if they are freed up from paying it,” he says.

“The price moves in favor of the margin rather than the customer in this case, so I would take such claims with a grain of salt until there is a proof in the form of the before-and-after prices from a national lender.”