New Deposit Insurance Rules Coming in April

When you think about this upcoming April 1st, you’re probably thinking about what great prank you will pull off. Or about getting that CRA public file uploaded to your website. In all the hubbub, you may have overlooked a new FDIC rule that is going into effect to change existing deposit insurance requirements. The rule amends the deposit insurance regulations for two types of accounts: trust accounts and mortgage servicing accounts. The intent is to make deposit insurance rules easier to understand, facilitate more timely determinations for trust accounts, and enhance coverage consistency for mortgage servicing deposits.

Trust Accounts

The revocable and irrevocable trust deposit insurance rules will be merged into one new “trust accounts” category with just one formula for calculating coverage for all revocable and irrevocable trust accounts. Under the rule, trust deposits will be insured up to $250,000 per beneficiary, up to five beneficiaries, so a maximum of $1,250,000 per owner per insured bank for any trust account.

This may sound familiar. The FDIC already utilizes this method to calculate coverage for revocable trusts with five or fewer beneficiaries. Small entities may also incur some initial costs to become familiar with the changes and explain them to potential trust customers, but this is counterbalanced by the fact that the rules should be easier to understand and explain.

Mortgage Servicing Accounts

For mortgage servicing accounts (MSA), the current rules provide coverage based on each borrower’s principal and interest payments into an account, up to $250,000 per borrower. However, there are instances where a mortgage servicer advances its funds to lenders on behalf of a borrower, and under the current rules, these do not receive the same coverage. Instead, principal and interest funds advanced by a servicer to cover delinquencies and foreclosure proceeds collected by servicers are insured to the servicer as corporate funds.

Under the new rule, principal and interest advances from servicers on behalf of borrowers would be insured up to $250,000 per borrower to make coverage in these situations more consistent. The composition of an MSA attributable to mortgage servicers’ advances on behalf of delinquent borrowers and collections would be insured per mortgagor, consistent with the coverage for payments of principal and interest collected directly from borrowers. Therefore, the rule expands coverage when an account maintained by a mortgage servicer contains principal and interest funds advanced by the servicer to satisfy the obligations of delinquent borrowers to the lender or foreclosure proceeds collected by the servicers. Generally, the amendments would provide consistent deposit insurance treatment for all MSA deposit balances held to satisfy principal and interest obligations to a lender, regardless of whether those funds are paid into the account by borrowers or paid into the account by another party to satisfy an obligation to remit principal and interest due to the lender.