Bankin’ Bits

Maximum Deposit Insurance Raised to $250,000

In a meeting held last Friday, October 10, 2008, the Federal Deposit Insurance Corporation (FDIC) Board of Directors adopted an interim rule with respect to deposit insurance coverage amounts and treatment of funds held in mortgage servicing accounts. The rule, effective October 10, 2008, raises the “standard maximum deposit insurance amount” (SMDIA), 12 C.F.R. 300.1(n), from $100,000 to $250,000 for the period October 3, 2008 until December 31, 2009. This is a conforming change to the temporary adjustment specified in the Emergency Economic Stabilization Act of 2008, Pub. L. No. 110-343 (October 3, 2008).

Deposit Insurance For Mortgage Servicing Accounts

The same interim rule also adjusts the method of insuring certain funds held in mortgage servicing accounts maintained in a custodial or other fiduciary capacity. Before the amendment, 12 C.F.R. 300.7(d) provided that principal and interest payments held in such accounts would be allocated on a pass-through basis for the interest of each owner (mortgagee, investor or security holder) of such accounts for purposes of computing SMDIA. Given the growth of securitization vehicles involving mortgage loans (including multi-layered structures), the FDIC is concerned about the impact on investors in the event of the failure of an FDIC-insured depository institution. Going forward, 12 C.F.R. 300.7(d) provides that accounts containing such principal and interest payments will be insured “for the cumulative balance paid into the account by the mortgagors, up to a limit of the SMDIA per mortgagor.” Thus, such funds will not be allocated to and aggregated with other deposits of investors OR mortgagors for purposes of SMDIA. Tax and insurance escrow deposits held in mortgage servicing accounts will continue to be allocated on a pass-through basis to individual mortgagors and aggregated with their other deposits for purposes of computing SMDIA.

Click here for a link to the interim rule.