4000 - Advisory Opinions
Insurance Coverage of Mortgage Servicing Accounts Under New Rules
July 6, 1993
Claude A. Rollin, Counsel
This is in response to your letter, dated June 29, 1993, concerning the deposit insurance that would be provided for certain mortgage servicing accounts, maintained by insured depository institutions, that are comprised of tax and insurance escrow funds.
You are correct in your assertion that, as of December 19, 1993, separate insurance will no longer be provided for accounts where an insured institution is acting as an agent, custodian, nominee, guardian, conservator or in any other fiduciary capacity with one exception: if an insured institution acts as trustee of an irrevocable trust established by statute or written trust agreement, the interest of each principal or beneficiary in the account will be separately insured from any other accounts that such principal or beneficiary has at the same insured institution.
These changes were mandated by statutory changes to section 7(i) of the Federal Deposit Insurance Act, 12 U.S.C. § 1817(i), made by section 311 of the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"). To implement these statutory changes, the FDIC revised section 330.10 of its regulations, 12 C.F.R. Part 330.
I disagree with the premise stated in your letter that "section 330.6(d) does provide for an exception allowing for separate insurance coverage in the case of mortgage servicer accounts." In fact, the FDIC's position has been, and continues to be, that a mortgagor's interest in a tax and insurance (T & I) account or a mortgagee's interest in a principal and interest (P & I) account is added to any other single ownership accounts of the mortgagor or the mortgagee at the same insured institution unless section 330.10 applies.
Since it is our position that section 330.6(d) does not provide any separate coverage for the interests of mortgagors in T & I accounts or mortgagees in P & I accounts, whether or not an insured institution can qualify as a mortgage servicer will not affect the extent of insurance coverage provided for the account. As of December 19, 1993, separate insurance coverage for the interests of mortgagors in T & I accounts or for the interests of mortgagees in P & I accounts will only be provided if the funds were deposited pursuant to an irrevocable trust established by statute or written trust agreement and an insured institution is acting as trustee under the trust. I suspect that most mortgage servicing accounts are not established pursuant to an irrevocable trust and thus the separate coverage provided under section 330.10 will no longer be available.
Please call me at 898-3985 if you have any further questions.