More than two-thirds of the 440,000 home buyers in the Washington area do not get interest on the money they pay monthly to banks or savings and loans for home taxes and insurance.

That means that on such mortgage escrow accounts, the average Virginia home buyer is losing $42 a year at current interest rates; the average District of Columbia home buyer, $27. The Marylander who doesn't qualify for interest because his escrow account was opened before a 1974 state law mandating interest is losing $63 a year.

Local lending institutions, meantime, have the use of an average of $116 million in escrow funds and may be taking in as much as $14 million from them, while paying out about $2 million in interest.

"It is a gross inequity," said Del. Elise Heinz (D-Arlington), who sponsored a measure in the just-concluded General Assembly session that would have required Virginia lenders to pay interest on escrow money. It did not get out of committee.

She argued that lenders requiring escrow accounts should pay interest to home buyers because "they are using other people's money . . . and anyone who has the use of other people's money is making out like a bandit."

Lenders generally acknowledge that they earn money by lending or investing escrow funds until they are needed to pay the home buyers' taxes and insurance. But they say that such income is greatly reduced by the expense of maintaining escrow accounts -- recording monthly deposits, disbursing funds to tax collectors and insurance companies, and in some cases temporarily making up any shortage between a home buyer's deposit and what is due. They will not say how much they earn on the escrow accounts, however.

Escrow accounts date from the Great Depression of the 1930s when many homeowners couldn't pay their taxes and ultimately lost their homes through foreclosures. To guard against that, such agencies as the Federal Housing Administration began requiring lending institutions to collect a portion of the property taxes each month from the home buyer. Later the institutions also began to collect monthly for mortgage insurance.

Today's home buyer typically makes one monthly mortgage payment, which includes the amount due on the loan, the taxes and perhaps the insurance.The lender puts the money into a special escrow account until those payments come due semiannually or annually. In most cases, the escrow account is required as a condition of the loan.

During the early 1970s, when interest rates burst upward, consumer advocates led a campaign to get interest on the money, and 11 states, including Maryland, passed laws mandating interest on escrow funds. Lenders in three other states -- Hawaii, Illinois and Nebraska -- began to pay interest on escrow voluntarily.

In Maryland, legislators pushed through a law that requires most lenders to pay interest on escrow funds established after May 31, 1974.

The District of Columbia, rather than require interest, outlawed the escrow account requirement for borrowers who paid down 20 percent or more of the purchase price on homes after 1974. That left the home buyer free to put the money in interest-paying investments rather than into an escrow account that paid nothing. Virginia, meantime, didn't change any of its laws.

The result is a crazy quilt of regulations, rules and policies that require:

A lending institution to pay interest to some escrow customers but not others. Perpetual American Savings & Loan Association, the area's largest, for example, routinely separates Maryland home buyers from residents of Virginia and D.C., programming its computers to pay interest on the new Maryland accounts but not on the rest.

A maximum of 5.25 percent interest on escrow accounts at some institutions and a maximum of 7 percent at others, depending on regular passbook savings rates at the institutions.

Payment of interest to home buyers in D.C., Virginia and Maryland by Maryland's national banks, regulated by the U.S. Comptroller of the Currency, and by state banks and savings and loan associations that are regulated by the Maryland Bank Commission. Federally insured savings and loan associations operating in Maryland, however, don't have to pay interest when the land is outside the state because of an exemption written into federal regulations.

What annoys some home buyers caught in the web of the policies and practices is the institutional decision to pay interest to some customers because the law requires it but not to others because the law doesn't mandate it.

A case in point is Gary Kah, who borrowed from a Maryland lender to buy a Virginia condominium. Kah discovered that he wasn't receiving interest from Standard Federal Savings & Loan Association when he reviewed his annual escrow account statement.

"I called and they asked where I lived. They they said that their Virginia and D.C. customers don't get interest; only their Maryland customers."

A survey of 10 lending institutions here found that generally they pay interest to Maryland customers who opened escrow accounts after May 31, 1974, but not to any others.

Asked to explain the rationale for that practice, M. Bradley Griggs, senior vice president of National Permanent Federal Savings and Loan Association, said: "We feel we are giving escrow service; we are protecting savers. We are protecting ourselves. We are providing the escrow service free. The fact that Maryland law requires us to do something different is something we can't help."

Griggs also said, "If we had a choice, we would give no one interest."

Because of the great fragmentation of rules and regulators, some confusion still exists over the interest to be paid to those borrowing money from Maryland institutions for homes in Virginia and D.C.

All banks and S&Ls chartered by Maryland and under the jurisdiction of the state banking commission should pay interest on escrow no matter where the home property is located -- Maryland, Virginia, D.C. or elsewhere.

But a survey of such lenders indicated that some are not paying interest except to Maryland borrowers.

Maryland law contains no penalty for violations of the interest requirement.

However, any home buyer who is dealing with a Maryland-chartered lender and believes himself entitled to interest can take his case to the Office of the Maryland Bank Commissioner.

Federally regulated S&Ls pay interest on escrow to Maryland home buyers but are not required to pay interest to customers outside Maryland.

National banks operating in Maryland, however, are required to pay interest to home buyers outside the state as well as inside, in compliance with the state law, according to Chuck Byrd, legal counsel for the U.S. Comptroller of the Currency, the agency with jurisdiction over them.

He added that the question about interest had never come up until now. But he said a directive is being prepared for bank examiners to ensure that, during their audits, they check to make sure the national banks in Maryland are paying interest to eligible homebuyers outside the state as well as inside.