FDIC Simplifies Rules on Servicing Accounts

The Federal Deposit Insurance Corp. has simplified its rules on insuring mortgage servicer accounts so that mortgage-backed securities investors and homeowners are better protected in the event of a bank or thrift failure. Effective October 10, mortgage servicing accounts of principal and interest(P&I) are insured for up to $250,000 per mortgagor/homeowner at all depositories, according to an interim rule adopted on Friday by the FDIC's 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. FDIC staff noted that mortgage securitizations have become too complex, difficult and time consuming when it comes to deciphering investors' interests. The agency also noted that servicing accounts are an important source of liquidity for institutions and need better protection to prevent withdrawals. In response to the board's action, Fannie Mae said it is rescinding a recently adopted policy that required certain servicers to place P&I payments in trust accounts for safekeeping.