4000 - Advisory Opinions
Pass-Through Deposit Insurance For Mortgage Service Company Funds Representing Mortgagor Advances for Property Taxes and Insurance Premiums
March 7, 1988
J. William Via, Jr., Counsel
This is in response to your letter of February 22, 1988 inquiring, in effect, if a deposit held by a mortgage service company comprised of advances by mortgagors of funds to be used by the company to pay at the proper time on behalf of each mortgagor property taxes and insurance premiums qualified for "pass-through" deposit insurance.
The first requisite for "pass-through" deposit insurance is that the deposit account records of the bank disclose that the funds are held by the nominal depositor in a representative capacity, such as agent or custodian. If, as you indicate, the company in this case combines in a single deposit the mortgagors' advances for taxes and insurance premiums with funds owned by and held for the lender, then the deposit account records of the bank ought to reflect this. There is more than one acceptable way to do so, but it would be satisfactory form if the account were entitled with the name of the mortgage service company, followed by a designation of its representative capacity such as agent (or custodian) for a named lender followed by "and mortgagors." An additional requirement is that the records of either the bank or the depositor (mortgage service company) maintained in good faith and in the regular course of business reveal the (ascertainable and vested) ownership interest in the funds of each mortgagor. The mortgagors appear to have the requisite ownership interest since it appears that each continues to own the funds advanced for taxes and insurance until payment is made by the mortgage service company. Assuming that the applicable requirements are met, each mortgagor will be recognized for deposit insurance purposes in the same manner as if he or she had made the deposit in his or her name.