Does Mandating Interest Payments on Mortgage Escrow Accounts Benefit Consumers?

We use the 2018-2024 Home Mortgage Disclosure Act data in a difference-in-difference framework to show that requiring lenders to pay interest on mortgage escrow funds does not benefit consumers. Our estimates suggest that lenders almost completely offset lost revenue by increasing up-front origination fees. Low-income borrowers are those most affected, indicating a potential regressive cross-subsidy resulting from the regulation. We also find this rule lowers the likelihood applications are originated, again with greatest effect on low-income applicants. Unlike the results on origination fees, which constitute a surplus transfer, changes in the likelihood of origination signal total surplus declines stemming from this policy.