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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
{{4-28-89 p.4376}}
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.
{{4-28-89 p.4377}}
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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