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4000 - Advisory Opinions

Separate or "Pass-Through" Deposit Insurance for Freddie Mac Principal and Interest Accounts


July 22, 1985

Roger A. Hood, Assistant General Counsel

You state in your letter of June 21, following up on our June 20 telephone conversation, that Freddie Mac is revising the deposit account title that it requires for principal and interest (P & I) accounts maintained by Freddie Mac mortgage servicers in FDIC insured banks. The purpose, we understand, is to have the deposit account records of the bank disclose (per 12 C.F.R. § 330.1(b)(1)) and represent that the depositor-servicer holds the funds in a custodial capacity for Freddie Mac, which owns a portion of the funds itself and which is also custodian in turn of the balance of the funds for various owners of interests in the mortgages. Assuming adequate disclosure of the claimed custodial relationship, a further requirement (12 C.F.R. § 330.1(b)(2); see also 12 U.S.C. § 1822(c)) for "pass-through'' deposit insurance, of course, is that the details of the custodial relationship(s) and the ownership interests in the deposit account of other parties (here, Freddie Mac and each of the investors in the mortgages) must be ascertainable either from the records of the bank or from the records of the depositor, such records having been maintained in good faith and in the regular course of business.

We will not elaborate on the records requirement since it is our understanding that investors in Freddie Mac's mortgage participation certificates have no ascertainable ownership interest in any particular batch of mortgages; thus, they can have no ascertainable ownership interest in a particular P & I deposit account. Rather, it is our understanding that Freddie Mac is unconditionally required by the mortgage participation certificates to pay investors the principal and interest as promised on the face of such certificates, which is to say that Freddie Mac does not, as agent and custodian for the investors, collect (or cause to be collected) the payments due on a particular batch of mortgages for remittance to the investors. We have concluded, therefore, that investors in mortgage participation certificates do not have the requisite ownership interest in P & I deposit accounts to qualify for separate, or "pass-through," deposit insurance.

You are invited, of course, to demonstrate that we are wrong in our perception of the respective contractual rights and duties of Freddie Mac and the investors in mortgage participation certificates, in which case we will reconsider this matter.

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