4000 - Advisory Opinions
Insurance of Mortgage Servicing Accounts with Respect to Mortgage Revenue Bondholders
October 3, 1990
Mark A. Mellon, Attorney
This is in response to your letter of August 27, 1990 pertaining to federal deposit insurance (a copy is enclosed with this letter). Based on your correspondence, it is my understanding that one of your clients, the *** ("***"), issues mortgage revenue bonds pursuant to the terms of trust indentures between itself and state or nationally chartered banks (the "Trustees"). Proceeds of the bonds are used by the Trustees to purchase single family mortgage loans. Principal and interest payments by the mortgagors are then deposited by mortgage servicers into accounts of FDIC-insured depository institutions (the "receipts accounts"). The funds in the receipts accounts are then remitted by the mortgage servicers to the Trustees for payment to the *** bondholders. You wish to ascertain whether the funds on deposit in the receipts accounts would be insured to the *** bondholders and whether separate deposit insurance coverage would be provided for receipts accounts for different *** bond issues on deposit at the same institution.
Under the new uniform deposit insurance regulations, custodial accounts maintained by mortgage servicers which are comprised of principal and interest payments are insured up to $100,000 per owner (mortgagee, investor or security holder). 12 C.F.R. §330.6 (d). You state that *** pledges all of its rights in the mortgage loans and any payments made thereunder to the Trustees for the benefit of the *** bondholders. Federal deposit insurance, under new insurance regulations, would therefore "pass through" to the *** bondholders in the event of an insurance determination. The right and capacity by which the bonds are held will determine how the receipts account funds will be insured, that is, if *** bonds are owned by an individual, the funds in the receipts account which are attributable to that bondholder will be insured as individual funds. The attributable funds in the receipts accounts will be aggregated with any other funds on deposit in the institution which are held by the bondholder in the same right and capacity. Thus, funds attributable to an individual bondholder would be aggregated with any other individual funds which that person may have on deposit.
As a result, funds in receipts accounts for separate *** bond issues will be aggregated whenever they are attributable to individuals or entities who hold bonds from the different bond issues in the same right and capacity. To use the example in your letter, a bondholder who purchases a 1984 *** bond in the amount of $75,000 and a 1986 *** bond in the amount of $90,000 will only have up to $100,000 of federal deposit insurance for the funds which are attributable to him in the two receipts accounts for those bond issues.
It must be noted, however, that the new insurance regulation for mortgage servicing accounts is not effective until October 27, 1990. 12 C.F.R. §330.16(d). Until that date, mortgage servicing accounts in all FDIC-insured institutions which are comprised of principal and interest payments from mortgagors will be insured to $100,000 per mortgagor as required by Section 402(d) of the Financial Institutions Reform, Recovery and Enforcement Act of 1989.
I hope that this letter is responsive to your inquiry. Please contact me if you have any questions about this or any other matter.