Joint Trades Letter to the OCC on Real Estate Lending Escrow Accounts

Dear Comptroller Gould:

The American Bankers Association and Mortgage Bankers Association appreciate the opportunity to comment on the Office of the Comptroller of the Currency's (OCC) proposed rule codifying the authority of national banks and federal savings associations to establish, maintain, and set the terms and conditions of escrow accounts in connection with their real estate lending. The Associations strongly support the proposal and commend the OCC for reaffirming that escrow account management is a core component of national banks' federally authorized real estate lending powers.

I. The proposed rule appropriately codifies the longstanding authority of national banks to manage real estate lending escrow accounts.

As the OCC explains in its proposed rule, escrow accounts have been recognized as an important risk-mitigation tool since the late 1930s. Since then, the OCC has recognized escrow administration as part of loan administration and collateral protection, which calls for free exercise of business judgment in how to structure and pay for escrow operations. The proposal rightly recognizes that escrow account management is not an ancillary or ministerial function, but rather an integral aspect of real estate lending grounded in federal statute, longstanding agency precedent, and safety and soundness principles. The proposed rule properly codifies this historical understanding and provides important clarity in an area where state-law intrusion threatens to undermine core federal banking powers.

The OCC also correctly recognizes that escrow account management is a fundamental risk-mitigation tool that supports safe and sound mortgage lending and is inseparable from banks' real estate lending authority. As the proposal explains, escrow account practices fall squarely within banks’ real estate lending powers under applicable federal law, including the Federal Reserve Act, the Home Owners' Loan Act of 1933 (HOLA), and the National Bank Act. The Federal Reserve Act specifically grants the OCC authority to issue regulations establishing requirements for how national banks "make, arrange, purchase or sell loans or extensions of credit secured by liens on interests in real estate." HOLA similarly authorizes the OCC to prescribe rules and regulations governing the organization, operation, and regulation of Federal savings associations, including regulations specifying their powers to invest in, sell, or otherwise deal in loans secured by interests in real estate.

II. Escrow account management is a core risk management and safety and soundness tool for national banks.

The Associations agree that the structure and management of escrow accounts are an integral part of the business of banking involving collateral protection, safety and soundness, liquidity management, credit risk, and loan pricing. The ability to structure and manage escrow accounts is therefore inseparable from a bank’s exercise of its real estate lending powers.

Download the joint comment letter to read the full text.