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States sue to block rules that could end interest on some mortgage escrows

The lawsuit targets recently issued federal banking regulator rules that would override state laws requiring lenders to pay interest on certain escrow accounts.

Reported · Written up by our desk · Mortgages

CNBC reports that multiple states have filed a legal challenge to new federal rules issued by banking regulators that would limit whether mortgage escrow accounts earn interest for some homeowners.

The case centers on federal preemption, with the states arguing that the federal framework would override state laws that require banks to pay interest on escrow accounts used to cover property taxes and insurance.

The rules at issue were recently issued by federal banking regulators, and the dispute is now in court as the states seek to block the change.

The outcome could affect whether certain borrowers receive interest tied to their escrow balances, depending on how the federal rules apply and what the court decides.

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