DFS issues order setting mortgage escrow interest rate

In another state-level victory for credit unions, the state Department of Financial Services issued an order to set the minimum interest rate to be paid by state-chartered financial institutions—including credit unions—on escrow accounts in connection with loans secured by mortgages on one-to-six family residences. The order, which the New York Credit Union Association strongly supports, sets the rate to the lesser of 2 percent or the six-month yield on United States Treasury securities for loans secured by mortgages on one-to-six family residences that are occupied by the owner, or on any property owned by a cooperative apartment corporation during any calendar quarter.

The Association spearheaded the effort, and Association staff worked directly and closely with staff from the DFS to oversee the issuance of the order.

The DFS released their notice of intent to issue the order last month. At the time, Association President/CEO William J. Mellin explained:

“The New York Credit Union Association has worked closely with top officials at the DFS to improve the state charter and ease the regulatory burden on credit unions without sacrificing consumer protections. The Association identified the mandatory payment of 2 percent on mortgage escrow accounts as a significant burden and a serious disadvantage for state-chartered credit unions. The DFS proposal is yet another sign of the department’s commitment to improve operating conditions for its regulated financial institutions in New York and for pursuing common-sense regulatory reforms.”

The order was issued under the state’s “wildcard” law, which provides state-chartered credit unions, banks and thrifts the opportunity to exercise the same banking powers that are available to federally chartered institutions.