Federal banking regulators just issued new rules that let banks stop paying interest on escrow accounts in states where that was previously required. States are suing. The banks are holding your property tax and insurance money. They were paying you interest on it in some states. Now they don't have to.
This is the same money you already gave them. Money they're required to hold. Money you can't touch until they decide to pay your taxes. And in states like New York and California, banks had to pay you interest on that captive pile of cash. Had to.
The federal regulators looked at this arrangement and thought, "You know what's wrong with American banking? Too much interest going to homeowners."
Preemption is the legal term. Means federal law overrides state law. Regulators preempted state requirements. Banks can now hold your escrow money, invest it, earn returns on it, and pay you exactly zero percent while you wait for them to mail a check to your county assessor four months late.
The states filing suit argue this violates their authority to regulate banks operating within their borders. The banks argue they're following federal guidance. The homeowners argue nothing because nobody asked them and they won't notice the missing seventeen dollars until they read their annual escrow statement in a year and a half.
Seventeen dollars is the actual amount. Maybe thirty if you live somewhere expensive. That's the interest. That's what this fight is about. Federal regulators burned political capital and triggered a multi-state lawsuit so banks could keep the monthly interest on your $4,000 escrow balance.
Your mortgage payment just became slightly less profitable for you and slightly more profitable for the bank holding your note. The technical analysis remains unchanged. The chart doesn't care about your escrow account.
Photo by Martin Zenker on Unsplash
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