[Federal Register Volume 73, Number 202 (Friday, October 17, 2008)]
[Rules and Regulations]
[Pages 61658-61660]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-24626]


-----------------------------------------------------------------------

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 330

RIN 3064-AD36


Deposit Insurance Regulations; Temporary Increase in Standard 
Coverage Amount; Mortgage Servicing Accounts

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Interim rule with request for comments.

-----------------------------------------------------------------------

SUMMARY: The FDIC is adopting an interim rule to amend its deposit 
insurance regulations to reflect Congress's recent action to 
temporarily increase the standard deposit insurance amount from 
$100,000 to $250,000 and to simplify the deposit insurance rules for 
funds maintained in mortgage servicing accounts.
    The FDIC's main goals in revising its insurance rule on mortgage 
servicing accounts are to simplify a rule that has become increasingly 
complex in application due to developments in securitizations and to 
provide additional certainty with respect to the deposit insurance 
coverage of these accounts at a time of turmoil in the housing and 
financial markets. The FDIC believes this regulatory change will help 
improve public confidence in the banking system.

DATES: The effective date of the interim rule is October 10, 2008. 
Written comments must be received by the FDIC not later than December 
16, 2008.

ADDRESSES: You may submit comments by any of the following methods:
     Agency Web Site: http://www.fdic.gov/regulations/laws/federal. Follow instructions for submitting comments on the Agency Web 
Site.
     E-mail: [email protected]. Include ``Mortgage Servicing 
Accounts'' in the subject line of the message.
     Mail: Robert E. Feldman, Executive Secretary, Attention: 
Comments, Federal Deposit Insurance Corporation, 550 17th Street, NW., 
Washington, DC 20429.
     Hand Delivery/Courier: Guard station at the rear of the 
550 17th Street Building (located on F Street) on business days between 
7 a.m. and 5 p.m. (EST).
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
    Public Inspection: All comments received will be posted without 
change to http://www.fdic.gov/regulations/laws/federal including any 
personal information provided. Paper copies of public comments may be 
ordered from the Public Information Center by telephone at (877) 275-
3342 or (703) 562-2200.

FOR FURTHER INFORMATION CONTACT: Joseph A. DiNuzzo, Counsel, Legal 
Division (202) 898-7349 or Christopher Hencke, Counsel, Legal Division 
(202) 898-8839, Federal Deposit Insurance Corporation, Washington, DC 
20429.

SUPPLEMENTARY INFORMATION:

I. Background

A. Temporary Increase in Insurance Coverage

    The Emergency Economic Stabilization Act of 2008 temporarily 
increased the standard maximum deposit insurance amount (``SMDIA'') 
from $100,000 to $250,000, effective October 3, 2008, and ending 
December 31, 2009.\1\ After that date, the SMDIA will, by law, return 
to $100,000. In the interim rule the FDIC is amending its deposit 
insurance regulations to reflect the temporary increase in the SMDIA.
---------------------------------------------------------------------------

    \1\ Public Law 110-343 (October 3, 2008).
---------------------------------------------------------------------------

B. Mortgage Servicing Accounts

    The FDIC was established to maintain public confidence and 
stability in the United States banking system and protect insured 
depositors. The regulations governing deposit insurance coverage are 
codified at 12 CFR part 330, and they include specific rules on 
deposits of payments collected by mortgage servicers and placed into 
accounts at insured depository institutions. 12 CFR 330.7(d) 
(``mortgage servicing accounts''). Accounts maintained by a mortgage 
servicer, in a custodial or other fiduciary capacity, may include funds 
paid by mortgagors for principal, interest and escrowed amounts for 
taxes and insurance premiums. Principal and interest funds are insured 
for the interest of each owner (mortgagee, investor or security holder) 
in those accounts. Under section 330.7(d) funds maintained by a 
servicer, in a custodial or other fiduciary capacity, which represent 
payments by mortgagors of taxes and insurance premiums are added 
together and insured for the ownership interest of each mortgagor in 
those accounts.
    The FDIC's rules for mortgage servicing accounts were adopted in 
1990, after the Financial Services Reform, Recovery, and Enforcement 
Act of 1989, abolished the Federal Savings and Loan Insurance 
Corporation (``FSLIC'') and transferred the insurance of savings 
association deposits to the FDIC. Prior to that time, the FDIC did not 
have specific rules for mortgage servicing accounts, and the FSLIC's 
rules provided insurance coverage for principal and interest funds 
based on the interest of each mortgagor.\2\
---------------------------------------------------------------------------

    \2\ 12 CFR 564.3(b)(2)(1989).
---------------------------------------------------------------------------

    As described above, under section 330.7(d), funds representing 
payments of principal and interest are insurable on a pass-through 
basis to each mortgagee, investor or security holder. In contrast, 
funds representing payments of taxes and insurance are insurable on a 
pass-through basis to each mortgagor or borrower. When the FDIC adopted 
these rules in 1990, it focused largely on the fact that principal and 
interest funds are owned by the investors, on whose behalf the 
servicer, as agent, accepts the principal and interest payments, and 
are not owned by the borrowers. By contrast, under the current rule, 
taxes and insurance funds are insured to the mortgagors or borrowers on 
the theory that the borrower still owns the funds until the tax and 
insurance bills are actually paid by the servicer.
    Over the past several years, securitization methods and vehicles 
for mortgages have become more layered and complex. The FDIC believes 
that it has become much more difficult and time-consuming for a 
servicer to identify and determine the share of any investor in a 
securitization and in the principal and interest funds on deposit at an 
insured depository institution.
    Under the current regulation, in the event of the failure of an 
FDIC-insured depository institution, the FDIC is concerned that there 
could be unexpected loss to securitization investors of principal and 
interest payments deposited at the institution by

[[Page 61659]]

a securitization servicer. As noted above, these accounts may involve 
multi-layered securitization structures, and it may prove difficult for 
the servicer holding a deposit account in the institution to identify 
every security holder in the securitization and determine his or her 
share. In addition, some investor holdings may far exceed the current 
$250,000 per-depositor insurance limit.\3\ Application of the current 
rule under these circumstances could result in delays in the servicer 
receiving the insured amounts and in losses for amounts that, because 
of the complexity of the securitization agreements, cannot be 
attributed to the particular investors to whom the funds belong. This 
outcome could increase losses to otherwise insured depositors, lead to 
withdrawal of deposits for principal and interest payments from 
depository institutions, and unnecessarily reduce liquidity for such 
institutions.
---------------------------------------------------------------------------

    \3\ As noted above, the Emergency Economic Stabilization Act of 
2008 temporarily increased the standard maximum deposit insurance 
amount from $100,000 to $250,000, effective October 3, 2008, and 
ending on December 31, 2009. After that date, the insurance coverage 
limit will, by law, return to $100,000.
---------------------------------------------------------------------------

II. The Interim Rule (for Mortgage Servicing Accounts)

Explanation

    The FDIC's goals in this rulemaking are twofold. First, the FDIC 
seeks to make the coverage rules for mortgage servicing accounts easy 
to understand and easy to apply (in determining the applicable coverage 
amount). Second, the FDIC recognizes that, at any one time, billions of 
dollars in principal and interest funds may be on deposit at insured 
depository institutions, providing a significant source of liquidity 
for the institution and credit to the institution's community. The FDIC 
seeks to avoid any uncertainty as to the extent of deposit insurance 
coverage that could have inadvertent adverse consequences.
    Because it may be difficult for a servicer to identify all 
investors and their individual interests in a securitization following 
the failure of an insured depository institution, the coverage under 
the interim rule will be determined on a per-mortgagor (or borrower) 
basis. Moreover, servicers will be able to identify mortgagors more 
quickly than investors, thus per-mortgagor coverage will enable the 
FDIC to pay deposit insurance more quickly.
    Under the interim rule, the coverage afforded in connection with a 
mortgage servicing account will be based on each mortgagor's payments 
of principal and interest into the mortgage servicing account, up to 
standard maximum deposit insurance amount (currently, through December 
31, 2009, $250,000) per mortgagor. In effect, coverage will be provided 
to the mortgagees/investors, as a collective group, based on the 
cumulative amount of the mortgagors' payments of principal and interest 
into the account. This insurance coverage afforded in connection with 
principal and interest payments in mortgage servicing accounts will not 
be aggregated with or otherwise affect the coverage provided to 
mortgagors in connection with other accounts the mortgagors might 
maintain at the same insured depository institution. As under the 
current insurance rules, under the interim rule amounts in a mortgage 
servicing account constituting payments of taxes and insurance premiums 
will be insured on a pass-through basis as the funds of each respective 
mortgagor. Such funds will be added to other individually owned funds 
held by each such mortgagor at the same insured institution and insured 
to the applicable limit.

Effective Date of the Interim Rule

    The interim rule applies to all existing and future mortgage 
servicing accounts as of October 10, 2008, the date on which the FDIC 
Board of Directors approved the interim rule. October 10, 2008 also is 
the date the interim rule was filed for public inspection with the 
Office of the Federal Register. In this regard, the FDIC invokes the 
good cause exception to the requirements in the Administrative 
Procedure Act \4\ (``APA'') that, before a rulemaking can be finalized, 
it must first be issued for public comment and, once finalized, must 
have a delayed effective date of thirty days from the publication date. 
The FDIC believes good cause exists for making the interim rule 
effectively immediately. Under the current rules, the complexity of 
determining the actual interest of each investor in a securitization 
could delay significantly the payment of insurance coverage and, 
potentially, could result in a determination of uninsured funds because 
investors and their interests cannot be identified. The interim rule 
simplifies the coverage rules for mortgage servicing accounts to 
address those issues, while recognizing the continued relationship of 
the principal and interest payments and taxes and insurance payments to 
the mortgagor. As a result, the interim rule will provide greater 
certainty to depositors, servicers, mortgagees, investors, and other 
security holders, depository institutions, and other parties involved 
in the securitization of mortgages about the extent to which those 
accounts are insured.
---------------------------------------------------------------------------

    \4\ 5 U.S.C. 553.
---------------------------------------------------------------------------

    For these reasons, the FDIC has determined that the public notice 
and participation that ordinarily are required by the APA before a 
regulation may take effect would, in this case, be contrary to the 
public interest and that good cause exists for waiving the customary 
30-day delayed effective date. Nevertheless, the FDIC desires to have 
the benefit of public comment before adopting a permanent final rule 
and thus invites interested parties to submit comments during a 60-day 
comment period. In adopting the final regulation, the FDIC will revise 
the interim rule, if appropriate, in light of the comments received on 
the interim rule.

III. Request for Comments

    The FDIC requests comments on all aspects of this interim rule.

IV. Paperwork Reduction Act

    The interim rule will revise the FDIC's deposit insurance 
regulations. It will not involve any new collections of information 
pursuant to the Paperwork Reduction Act (44 U.S.C. 3501 et seq.). 
Consequently, no information collection has been submitted to the 
Office of Management and Budget for review.

V. Regulatory Flexibility Act

    The Regulatory Flexibility Act requires an agency that is issuing a 
final rule to prepare and make available a regulatory flexibility 
analysis that describes the impact of the final rule on small entities. 
5 U.S.C. 603(a). The Regulatory Flexibility Act provides that an agency 
is not required to prepare and publish a regulatory flexibility 
analysis if the agency certifies that the final rule will not have a 
significant economic impact on a substantial number of small entities.
    Pursuant to section 605(b) of the Regulatory Flexibility Act, the 
FDIC certifies that the interim rule will not have a significant impact 
on a substantial number of small entities. The interim rule implements 
the temporary increase in the SMDIA and simplifies the coverage rules 
for mortgage servicing accounts.

VI. The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families

    The FDIC has determined that the interim rule will not affect 
family well-being within the meaning of section 654

[[Page 61660]]

of the Treasury and General Government Appropriations Act, enacted as 
part of the Omnibus Consolidated and Emergency Supplemental 
Appropriations Act of 1999 (Pub. L. 105-277, 112 Stat. 2681).
    The interim rule should have a positive effect on families by 
clarifying the coverage rules for mortgage servicing accounts, which 
contain, for some period of time, the mortgage payments from borrowers.

VII. Small Business Regulatory Enforcement Fairness Act

    The Office of Management and Budget has determined that the interim 
rule is not a ``major rule'' within the meaning of the relevant 
sections of the Small Business Regulatory Enforcement Act of l996 
(``SBREFA'') (5 U.S.C. 801 et seq.). As required by SBREFA, the FDIC 
will file the appropriate reports with Congress and the General 
Accounting Office so that the interim rule may be reviewed.

List of Subjects in 12 CFR Part 330

    Bank deposit insurance, Banks, banking, Reporting and recordkeeping 
requirements, Savings and loan associations, Trusts and trustees.


0
For the reasons stated above, the Board of Directors of the Federal 
Deposit Insurance Corporation amends part 330 of chapter III of title 
12 of the Code of Federal Regulations as follows:

 PART 330--DEPOSIT INSURANCE COVERAGE

0
1. The authority citation for part 330 continues to read as follows:

    Authority: 12 U.S.C. 1813(l), 1813(m), 1817(i), 1818(q), 1819 
(Tenth), 1820(f), 1821(a), 1822(c).


0
2. In Sec.  330.1, paragraph (n) is revised to read as follows:


Sec.  330.1  Definitions.

* * * * *
    (n) Standard maximum deposit insurance amount, referred to as the 
``SMDIA'' hereafter, means $250,000 from October 3, 2008, until 
December 31, 2009. Effective January 1, 2010, the SMDIA means $100,000 
adjusted pursuant to subparagraph (F) of section 11(a)(1) of the FDI 
Act (12 U.S.C. 1821(a)(1)(F)). All examples in this part use $100,000 
as the SMDIA.
* * * * *

0
3. In Sec.  330.7, paragraph (d) is revised to read as follows:


Sec.  330.7  Account held by an agent, nominee, guardian, custodian or 
conservator.

* * * * *
    (d) Mortgage servicing accounts. Accounts maintained by a mortgage 
servicer, in a custodial or other fiduciary capacity, which are 
comprised of payments by mortgagors of principal and interest, shall be 
insured for the cumulative balance paid into the account by the 
mortgagors, up to a limit of the SMDIA per mortgagor. Accounts 
maintained by a mortgage servicer, in a custodial or other fiduciary 
capacity, which are comprised of payments by mortgagors of taxes and 
insurance premiums shall be added together and insured in accordance 
with paragraph (a) of this section for the ownership interest of each 
mortgagor in such accounts. This provision is effective as of October 
10, 2008, for all existing and future mortgage servicing account.
* * * * *

    By order of the Board of Directors.

    Dated at Washington DC., this 10th day of October 2008.

Federal Deposit Insurance Corporation.
Valerie J. Best,
Assistant Executive Secretary.
 [FR Doc. E8-24626 Filed 10-16-08; 8:45 am]
BILLING CODE 6714-01-P