We are not aware of any federal laws or regulations that would preempt the Illinois Mortgage Escrow Account Act. For example, the RESPA regulations include escrow requirements (in 12 CFR 1024.17), but they also state that they do not preempt state law, except where the state law is inconsistent with RESPA:
State laws that are inconsistent with RESPA or this part are preempted to the extent of the inconsistency. However, RESPA and these regulations do not annul, alter, affect, or exempt any person subject to their provisions from complying with the laws of any state with respect to settlement practices, except to the extent of the inconsistency.
Also note that there is a limited exception in the Mortgage Escrow Account act – with respect to the mortgagor’s right to cancel the escrow account under the Illinois Act – for mortgage loans that are “insured, guaranteed, supplemented, or assisted” by the federal government or State of Illinois, if such programs require escrow accounts for the loans. 765 ILCS 910/7. We believe that this provision would exempt mortgage loans sold to Fannie Mae or Freddie Mac. However, this exception applies only to one provision of the law, in Section 5, which allows borrowers to terminate an escrow account after it is reduced to 65% of its original amount. The requirement to provide notice when the escrow account reaches the 65% threshold would still apply, along with any requirements in other sections of the law, such as the requirement to provide notice of the Act’s requirements at the loan closing, in Section 11, and the requirement to allow borrowers to open an interest bearing time deposit in lieu of an escrow account, in Section 6.