FDIC Gives Escrow Assurance FDIC Assurance

Washington-The Federal Deposit Insurance Corp. has simplified its rules on insuring mortgage servicing accounts so that mortgage-backed securities investors are better protected in the event of a bank and thrift failure.

Effective Oct. 10, escrow accounts of principal and interest payments are insured up to $250,000 per mortgagor/homeowner, according to an interim adopted by the FDIC board of directors.

Previously, insurance coverage was determined by the lenders/investors' interest in the P&I accounts, which could lead to unexpected losses for MBS investors and disrupted payments to investors.

In response to the FDIC's action, Fannie Mae said it is rescinding a recently adopted policy of collecting P&I payments daily from certain servicers and placing the funds in trust accounts for safekeeping.

"This simplification of the coverage rules for mortgage servicing accounts will help prevent losses to otherwise insured depositors and prevent withdrawals of deposits for principal and interest payments from depository institutions," said FDIC chairman Sheila Bair.

FDIC staff noted that servicing accounts are an important source of liquidity for institutions and need better protection to prevent withdrawals. In addition, they said mortgage securitizations have become so complex, it is too difficult and time consuming to decipher investors' interests.

The Mortgage Bankers Association welcomed the action. "In light of the current market instability, we are grateful for any action that calms the concerns of individuals, financial institutions and the market as a whole in a safe and sound manner," MBA chief operating officer John Courson said.

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