4000 - Advisory Opinions
Insurance of Mortgage Servicing Accounts Under New Rules
August 17, 1990
Roger A. Hood, Assistant General Counsel
This letter is in response to Mr. *** inquiry of May 1, 1990 requesting the Federal Deposit Insurance Corporation's opinion on the following four questions, in light of the adoption of the final rules governing deposit insurance. The questions were:
1. Would the rules applicable to mortgage servicing accounts at Pub. L. No. 101--73, §402(d)(2) (temporary) and 54 Fed. Reg. 52399, 52414 (December 21, 1989) (proposed) apply to the accounts?
2. If the mortgage servicing account rules would apply, would each bondholder be considered a separate owner under the proposed rules, such that the interests of each bondholder in principal and interest in the accounts at any one institution would be aggregated and insured up to $100,000 per bondholder?
3. If the mortgage servicing account rules would not apply, then would the rules applicable to public bond issues at 12 C.F.R. §330.8 (current) and 54 Fed. Reg. at 52417 (proposed) apply to the accounts?
4. Are the existing and proposed recordkeeping requirements satisfied by the recordkeeping practices described in part II?
The following discussion should respond to your concerns.
Question No. 1
The FDIC's new rule with respect to the insurance coverage of mortgage servicing accounts provides:
Accounts maintained by a mortgage servicer, in a custodial or other fiduciary capacity, which are comprised of payments by mortgagors of principal and interest, shall be added together and insured in the amount of up to $100,000 for the interest of each owner (mortgagee, investor or security holder) in such accounts. Accounts maintained by a mortgage servicer, in a custodial or other fiduciary capacity, which are comprised of payments by mortgagors of taxes and insurance premiums shall be added together and insured in the amount of up to $100,000 for the ownership interest of each mortgagor in such accounts.
12 C.F.R. §330.6(d). The effective date for this new rule is July 29, 1990. However, the insurance for mortgage servicing accounts in existence prior to the above effective date, will be "grandfathered" for an additional ninety (90) days. Consequently, those mortgage servicing accounts will continue to be insured according to the Financial Institution Reform, Recovery and Enforcement Act of 1989 (FIRREA), Pub. L. No. 101--73, §402(d)(1) (1990), which provides in pertinent part that "amounts held in custodial accounts in insured depository institutions . . . for the payment of principal, interest, tax, and insurance payments for mortgage borrowers, shall be insured . . . in the amount of $100,000 per mortgage borrower."
It is the Legal Division's opinion that the rules applicable to mortgage servicing accounts will apply to the accounts established at the direction of the authority. Accordingly, until October 27, 1990, the accounts will be insured up to $100,000 on a per mortgage borrower basis. Thereafter, the accounts will be insured per 12 C.F.R. §330.6(d), and as such, the owner, mortgagee, investor or security holder will be insured up to the $100,000 insurance ceiling.
Question No. 2
Since until October 27, 1990, FIRREA section 402(d)(1) applies to the accounts, the individual mortgage borrowers will be considered the separate owners and insured up to the $100,000 ceiling, not the bondholders. However, thereafter, each bondholder would be considered a separate owner such that the interests of each bondholder in principal and interest in the Accounts at any one institution would be aggregated and insured up to $100,000 per bondholder provided that the FDIC's recordkeeping requirements are satisfied (see discussion of question No. 4).
Question No. 3
Since the mortgage servicing rules do apply, the rules applicable to public bond issues need not be discussed.
Question No. 4
The recordkeeping practices described in part II of the March 15 letter, appear to satisfy the FDIC's recordkeeping requirements since the bondholders of record are maintained in the trustee's records and, some owners of record in turn hold the bonds for other individuals whose names are maintained in the records of the record owners. Per 12 C.F.R. §330.4(b)(3), concerning multi-tiered fiduciary relationships, our recordkeeping requirements are met when the deposit account records of the insured depository institution expressly indicate that the depositor is acting in a fiduciary capacity on behalf of certain persons or entities who may, in turn, be acting in a fiduciary capacity for others. The existence of additional levels of fiduciary relationships must be disclosed in records maintained in good faith and in the regular course of business by the parties at subsequent levels. And, at each of the subsequent levels, the names and interests of the persons on whose behalf the party at that level is acting must be disclosed.
I trust this is responsive to your inquiry. If you have additional questions, please feel free to contact me again. I may be reached at (202) 898-3681.