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4000 - Advisory Opinions
Company that Assist and Advises Mortgage Loan Servicer in Placing
Funds Must Register as Deposit Broker
FDIC-92-84
November 20, 1992
Valerie J. Best, Counsel
This is in response to your letter dated October 26, 1992
concerning deposit brokers. You ask if your company and its employees
are "deposit brokers" as that term is defined in the Federal
Deposit Insurance ("FDI") Act. Based upon the information
provided, your company and its employees are "deposit brokers."
Please consider the following.
Activities of ***
Your company is a Pennsylvania corporation registered with the
Pennsylvania Securities Commission, the United States Securities and
Exchange Commission and is a member of the National Association of
Securities Dealers, Inc. Your company's clients are the owners and
managers of Housing and Urban Development ("HUD"), Federal
Housing Authority ("FHA") insured properties. Your company
assists and advises its clients in placing the cash balances in their
"mortgage reserve for replacement/residual receipt escrows" in
FDIC-insured depository institutions.
The "Mortgagor" (i.e., your client) and the
Secretary of HUD ("Secretary") may enter into an Investment
Agreement for the purpose of investing funds from the Mortgagor's
reserve for replacements and/or residual receipts accounts with a
federally-insured depository institution. The Mortgagor periodically
directs the Secretary to transfer funds, limited to the maximum
insurable amount, to the depository institution designated in the
agreement. The Mortgagor may request that the Secretary withdraw and
disburse funds, and the Secretary has the authority to make withdrawals
as he deems appropriate. The Mortgagor pays any costs or service
charges imposed by the depository institution in connection with the
establishment and maintenance of the account, and any costs incurred
through the use of a broker. The Mortgagor designates the depository
institution and the type of account to be established. In consideration
for effecting the Agreement, the Secretary charges the Mortgagor fees
for opening the account, additional deposits, renewals, partial
redemptions, and closing the account. Your company assists and advises
the "Mortgagors" in the placement of funds under the Investment
Agreement.
Definition of ``Deposit Broker''
The term "brokered deposit" is defined in section 337.6(a)(3)
of the FDIC's regulations as "any deposit that is obtained, directly
or indirectly, from or through the mediation or assistance of a deposit
broker." The term "deposit broker" is defined in section 29 of
the FDI Act to mean, in relevant part:
(A) any person engaged in the business of placing deposits, or
facilitating the placement of deposits, of third parties with insured
depository institutions. . . .
12 U.S.C. § 1831f(g)(1)(A).
In other words, the FDI Act covers scenarios where the broker
"facilitates the placement" of deposits, as well as scenarios
where the broker places deposits in its name as nominee or agent for
others. In common usage, the term "facilitate" means "to free
from difficulty or impediment; to make easy or less
difficult." 1
Several exceptions to the definition of "deposit broker" are set
out in the statute; most of them concern depositors acting in certain,
specifically described, fiduciary relationships (e.g., the
trust department of an insured depository institution, the trustee of a
pension plan, etc.).
{{4-30-93 p.4697}}
Analysis and Opinion
The definition of "deposit broker" is quite broad and, unless
the activity in question comes within one of the statutory or
regulatory exclusions, the FDIC must and will consider the activity
deposit brokering. The activities of your company clearly bring your
company within the definition of "deposit broker." Assisting the
owners and managers of the properties in placing their cash balances,
or advising the owners and managers of the properties as to the
placement of their cash balances, certainly can be viewed as
facilitating the placement of deposits with insured depository
institutions. Further, we do not find that your company qualifies for
any of the exclusions from the definition of deposit broker.
FDIC staff has taken the position that a mortgage loan servicer
holding funds as a FHA trustee on behalf of HUD is not a deposit broker
when the mortgage loan servicer (without the involvement of a deposit
broker) directly places funds with an insured depository
institution. A mortgage loan servicer collects mortgage payments,
secures escrow funds, pays property taxes and insurance from the escrow
funds, monitors delinquencies, accounts for and remits principal and
interest payments to the investor. In that case, the depository bank
did not pay a fee, directly or indirectly, for the deposits. In your
case, however, your company is assisting and advising the mortgage loan
servicer in placing its funds, and that brings your company within the
definition of "deposit broker." The funds placed by the mortgage
loan servicer with your assistance would be considered "brokered
deposits."
We believe that Congress' intent in defining "deposit broker"
so broadly was to control the flow of brokered funds to all but the
best capitalized depository institutions insured by the FDIC. If, for
example, the depository institutions to which your company directs the
deposits of your client investors are "well capitalized," then
treating your company as a deposit broker would not impede the
placement of those funds with those depository institutions.
Conversely, if the depository institutions are not well capitalized,
then the other limiting provisions of the statute and regulation would
apply. We believe this interpretation is consistent with the literal
and intended meaning of section 29 of the FDI Act.
FDI Act Requirements Applicable to Deposit Brokers
Deposit brokers are prohibited from soliciting or placing any
deposit with an insured depository institution unless the deposit
broker has provided the FDIC with written notice that it is a deposit
broker. A company may file a single notice on behalf of all of its
employees and/or agents. However, the FDIC reserves the right to
require individual information at any time. The information that must
be included in the notice is described in the attached financial
institutions letter. The financial institutions letter also sets out
the restrictions applicable to insured depository institutions that are
not well capitalized.
I hope this information is helpful to you. Please contact me at the
above address or call me at (202) 898-3812 if you have any additional
questions.
1Black's Law Dictionary 591 (6th ed. 1990). Go Back to Text
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