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4000 - Advisory Opinions


Insurance Coverage of Mortgage Servicing Accounts

FDIC-88-75

November 10, 1988

Claude A. Rollin, Attorney

This is in response to your letter to our General Counsel, dated October 27, 1988, inquiring about the deposit insurance coverage that would be afforded by the FDIC to certain mortgage servicing accounts maintained by *** with an FDIC-insured bank.

You have indicated that *** is a mortgage servicer for the Government National Mortgage Association ("GNMA"), the Federal National Mortgage Association ("FNMA"), and the Federal Home Loan Mortgage Corporation ("Freddie Mac"). From your letter and our subsequent telephone conversation, it is my understanding that *** maintains two distinct types of mortgage servicing accounts with the bank. One type of account contains principal and interest ("P&I") payments received by *** from numerous mortgagors. The P&I payments are held in the deposit account and then remitted by *** on a designated date, directly to the holders of GNMA, FNMA and Freddie Mac securities.1 The other type of account contains tax and insurance ("T&I") payments received by *** from numerous mortgagors. The "T&I" payments are held in the deposit account until they are used to pay, on behalf of the mortgagors, taxes and insurance premiums due on the properties securing the pooled mortgages.

The first question posed in your letter is whether the P&I accounts (described above) would be entitled to deposit insurance coverage of up to $100,000 in the aggregate. The answer is that such accounts may be entitled to insurance coverage which far exceeds $100,000. This is because the FDIC has taken the position that each individual holder of (investor in) GNMA, FNMA and Freddie Mac securities is an owner of a portion of the funds held in such P&I accounts and that the security holder's interest in those accounts is directly proportional to security holder's interest in the underlying mortgage pools. Therefore, such P&I accounts would be insured in the amount of up to $100,000 for the interest of each security holder in such accounts, provided that the FDIC's recordkeeping requirements are satisfied (see answer to third question). If a security holder has interests in more than one P&I account, those interests would normally be aggregated for insurance purposes.2

The second question raised in your letter is whether the T&I accounts (described above) would be afforded deposit insurance coverage of up to $100,00 for the interest of each individual mortgagor in such accounts. The answer is that such accounts would, in fact, be entitled to insurance coverage of up to $100,000 for the interest of each individual mortgagor in the accounts, provided that the FDIC's recordkeeping requirements are satisfied (see answer to third question). To the extent that a single mortgagor has interests in more than one T&I account at the same insured bank those interests would be combined for insurance purposes, regardless of the number of underlying mortgages. See, footnote "2".

Your third question concerns the documentation that is required for the *** fiduciary depositor) to obtain insurance coverage for the interests of the mortgagors in the T&I accounts. I will outline not only how the FDIC's recordkeeping requirements can be satisfied so as to obtain so-called "pass-through" insurance coverage for the interests of the mortgagors in the T&I accounts, but also how they can be satisfied to obtain pass-through insurance coverage for the interests of the security holders in the P&I accounts. Section 330.1(b)(1) of the FDIC rules and regulations provides that the deposit account records of an insured bank " shall be conclusive as to the existence of any relationship pursuant to which the funds in the account are deposited and on which a claim for insurance coverage is founded." 12 C.F.R. § 330.1(b)(1). Section 330.1(b)(2) of our regulations provides that:

"[I]f the deposit account records of an insured bank disclose the existence of a relationship which may provide a basis for additional insurance, the details of the relationship and the interests of other parties in the account must be ascertainable either from the records of the bank or the records of the depositor maintained in good faith and in the regular course of business."

12 C.F.R. § 330.1(b)(2).

Therefore, in order to obtain pass-through insurance coverage for the interests of the mortgagors in the T&I accounts: (1) the deposit account records of the depository bank must disclose the existence of the fiduciary relationships (i.e., that *** is holding the funds on behalf of numerous mortgagors); and (2) the records of either the bank or the depositor maintained in good faith and in the regular course of business, must indicate the name and interest of each mortgagor in the T&I accounts. Likewise, in order to obtain pass-through coverage for the interests of the security holders in the P&I accounts: (1) the deposit account records of the depository bank must disclose the existence of the fiduciary relationships (i.e., that *** is holding the funds on behalf of numerous security holders); and (2) the records of either the bank or the depositor *** maintained in good faith and in the regular course of business, must indicate the name and interest of each security holder in the P&I accounts.

The fourth and final question in your letter is whether there are any alternative methods which would increase the deposit insurance afforded to P&I and T&I accounts. Perhaps this question is moot now that I have advised you that P&I accounts are insured according to the interest of each security holder (as provided above) rather than up to $100,000 in the aggregate (as you suggested in your letter). In case you are still seeking additional coverage, however, I must tell you that I am unaware of any alternative methods for increasing the insurance coverage afforded to P&I and T&I accounts.

The opinions and conclusions expressed herein are limited to the facts as I understand them. Should the facts or assumptions differ from those described above, or should the circumstances change in the future, the opinions set forth in this letter are subject to change. In addition, you should be aware that the opinions expressed in this letter present the current thinking of the Legal Division's staff but are not, in any way, binding upon the FDIC or its Board of Directors.

1 For the purposes of this opinion letter, I am assuming that *** is obligated to remit, and does in fact remit, the P&I payments in the Freddie Mac accounts directly to the holders of Freddie Mac securities just as *** forwards P&I payments directly to the holders of FNMA and GNMA securities. Go back to Text

2 Since your correspondence does not provide enough facts to determine whether the P&I and T&I accounts are irrevocable trust accounts (as opposed to custodial accounts), I am unable to determine whether the security holders' or mortgagors' interests in such accounts would be aggregated with any other individually owned accounts maintained by such persons at the same bank. Go back to Text


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