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Federal Register / Vol. 86, No. 146 / Tuesday, August 3, 2021 / Proposed Rules balances greater than $1.25 million.85
The data from failed banks suggest small IDIs could be affected by the proposal roughly in proportion to the share of trust depositors with account balances greater than $1.25 million at IDIs of all sizes which failed between 2010 and 2020.

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Expected Effects The proposed simplification of the deposit insurance rules for trust deposits is expected to have a variety of effects. The proposed amendments would directly affect the level of deposit insurance coverage provided to some depositors with trust deposits. In addition, simplification of the rules is expected to have benefits in terms of promoting the timely payment of deposit insurance following a small IDIs failure, facilitating the transfer of deposit relationships to failed bank acquirers with consequent potential reductions to the FDICs resolution costs, and addressing differences in the treatment of revocable trust deposits and irrevocable trust deposits contained in the current rules. The FDIC has also considered the impact of any changes in the deposit insurance rules on the DIF
and other potential effects.86 These effects are discussed in greater detail in Section III.A entitled Expected Effects.
Overall, due to the fact that the FDIC
expects most small IDIs to have only a small number of trust accounts with balances above the proposed coverage limit of $1,250,000 per grantor, per IDI
for trust deposits, effects on the deposit insurance coverage of small entities customers are likely to be small. There also may be some initial cost for small entities to become familiar with the proposed changes to the trust insurance coverage rules in order to be able to explain them to potential trust customers, counterbalanced to some extent by the fact that the proposed rules should be simpler to understand and explain going forward. As the business impacts and costs associated with operationalizing the proposed changes to the trust rules may vary significantly across IDIs, the FDIC
would welcome industry comments in this regard.
85 Whether a failed IDI is considered small is based on data from its four quarterly Call Reports prior to failure.
86 The FDIC has also considered the impact of any changes in the deposit insurance rules on the covered institutions that are subject to part 370. As described previously, part 370 affects IDIs with two million or more deposit accounts. Based on Call Report data as of March 31, 2021, the FDIC does not insure any institutions with two million or more deposit accounts that are also considered small entities.

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Alternatives Considered The FDIC has considered a number of alternatives to the proposed rule that could meet its objectives in this rulemaking. However, for reasons previously stated in Section I.E
Alternatives Considered, the FDIC
considers the proposed rule to be a more appropriate alternative.
The FDIC also considered the status quo alternative to not amend the existing trust rules. However, for reasons previously stated in Section I.E
Alternatives Considered, the FDIC
considers the proposed rule to be a more appropriate alternative.
Other Statutes and Federal Rules The FDIC has not identified any likely duplication, overlap, and/or potential conflict between this proposal and any other federal rule.
The FDIC invites comments on all aspects of the supporting information provided in this RFA section. In particular, would the proposal have any significant effects on small entities that the FDIC has not identified?
2. Amendments to Mortgage Servicing Account Rule Reasons Why This Action Is Being Considered As previously discussed, the FDIC
provides coverage, up to the SMDIA for each borrower, for principal and interest funds in MSAs only to the extent paid into the account by the mortgagors, and does not provide coverage for funds paid into the account from other sources, such as the servicers own operating funds, even if those funds satisfy mortgagors principal and interest payments under the current rules. The advances are aggregated and insured to the servicer as corporate funds for a total of $250,000. Under some servicing arrangements, however, mortgage servicers may be required to advance their own funds to make payments of principal and interest on behalf of delinquent borrowers to the lenders in certain circumstances. Thus, under the current rules, such advances are not provided the same level of coverage as other deposits in a mortgage servicing account comprised of principal and interest payments directly from the borrower. This could result in delayed access to certain funds in an MSA, or to the extent that aggregated advances insured to the servicer exceed the insurance limit, loss of such funds, in the event of an IDIs failure. The FDIC
is therefore proposing to amend its rules governing coverage for deposits in mortgage servicing accounts to address this inconsistency.

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Policy Objectives As discussed previously, the FDICs regulations governing deposit insurance coverage include specific rules on deposits maintained at IDIs by mortgage servicers. With the proposed amendments, the FDIC seeks to address an inconsistency concerning the extent of deposit insurance coverage for such deposits, as in the event of an IDIs failure the current rules could result in delayed access to certain funds in a mortgage servicing account MSA that have been aggregated and insured to a mortgage servicer, or to the extent that aggregated funds insured to a servicer exceed the insurance limit, loss of such funds.
The proposed rule is intended to address a servicing arrangement that is not specifically addressed in the current rules. Specifically, some servicing arrangements may permit or require servicers to advance their own funds to the lenders when mortgagors are delinquent in making principal and interest payments, and servicers might commingle such advances in the MSA
with principal and interest payments collected directly from mortgagors. This may be required, for example, under certain mortgage securitizations. The FDIC believes that the factors that motivated the FDIC to establish its current rules for MSAs, described previously, argue for treating funds advanced by a mortgage servicer in order to satisfy mortgagors principal and interest obligations to the lender as if such funds were collected directly from borrowers.
Legal Basis The FDICs deposit insurance categories have been defined through both statute and regulation. Certain categories, such as the government deposit category, have been expressly defined by Congress. Other categories, such as joint deposits and corporate deposits, have been based on statutory interpretation and recognized through regulations issued in 12 CFR part 330
pursuant to the FDICs rulemaking authority. In addition to defining the insurance categories, the deposit insurance regulations in part 330
provide the criteria used to determine insurance coverage for deposits in each category. The FDIC proposes to amend 330.7d of its regulations, which currently applies only to cumulative balance paid by the mortgagors into an MSA maintained by a mortgage servicer, to include balances paid in to the account to satisfy mortgagors principal or interest obligations to the lender. For a more detailed discussion of the
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