10 States Sue Trump Administration Over Mortgage Escrow Rule

• Ten states have sued the Trump administration over new rules allowing banks to keep interest earned from escrow funds.
• The lawsuit challenges the Office of the Comptroller of the Currency's decision to invalidate state laws requiring mortgage lenders to pay interest on escrow accounts.
• Critics argue that the move will lead to increased mortgage costs for homeowners and disadvantage state-chartered banks.

Time and again, we've seen the Trump administration hand out favors to insiders and corporate special interests at the expense of Oregonians.

A coalition of ten states has taken action against the Trump administration over its recent decision to invalidate an Oregon law requiring mortgage lenders to pay interest on escrow funds. The lawsuit, led by Oregon Attorney General Dan Rayfield, challenges a ruling by the Office of the Comptroller of the Currency (OCC) that effectively allows banks to keep money earned from borrowers' escrow accounts for themselves. This decision has sparked concerns among consumer protection advocates and state-chartered banks, who argue that it will lead to increased mortgage costs for homeowners. The OCC's new rules, issued in May, claim to reduce regulatory burdens on national banks and give them greater flexibility in managing escrow accounts. However, critics contend that the move is a handout to big banks at the expense of consumers and state authority.

The dispute centers around federal preemption of state laws requiring mortgage lenders to pay interest on money held in escrow accounts. The OCC's new rules assert that federal law supersedes state regulations, effectively invalidating Oregon's interest-on-escrow law and similar laws in other states. This move has been met with resistance from state attorneys general, who argue that it ignores federal court rulings upholding state interest-on-escrow laws and bypasses safeguards enacted by Congress to prevent bureaucratic overreach. The lawsuit also highlights the potential impact on state-chartered banks, which may be disadvantaged by the new rules.

The implications of this decision extend beyond the immediate financial burden on homeowners. As interest rates rise and mortgage costs increase, the shift in financial burden from lenders to borrowers could exacerbate the affordability crisis facing many states. Furthermore, the OCC's new rules may have far-reaching consequences for state-chartered banks, which could be forced to adopt more restrictive practices to remain competitive. The lawsuit serves as a test of federal preemption and its impact on state authority, with significant implications for consumer protection laws and financial regulation.

Lawyers and compliance officers should watch for potential client exposure to increased mortgage costs due to the Trump administration's new escrow rule, which could lead to a shift in financial burden from lenders to borrowers.

Source: Original reporting via Associated Press