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Federal Register / Vol. 86, No. 146 / Tuesday, August 3, 2021 / Proposed Rules understanding the effects of the proposed rule? The FDIC also encourages commenters to provide such information, if possible.
Grandfathering of the deposit insurance rules would result in significantly greater complexity for the period of time during which two sets of rules could apply to deposits especially in conducting resolutions.
Therefore, the FDIC is not inclined to consider allowing grandfathering, but rather rely on a delayed implementation date to allow stakeholders to make necessary adjustments as a result of the new rules. However, the FDIC
recognizes there are instances, such as trusts holding time deposits or other deposit relationships, which may not be easily restructured without adverse consequences to the depositor. Are there fact patterns where grandfathering the current rules may be appropriate?
Would grandfathering be appropriate with respect to the proposed rules coverage limit of $1,250,000 per IDI for a depositors trust deposits?
Are the examples provided clear and understandable? Are there other common trust deposit scenarios that would benefit from an example being provided?
Would any of the alternatives described above better meet the FDICs objectives in connection with this rulemaking? Are there any other alternatives that would better meet those objectives? Are there any other amendments to the deposit insurance rules applicable to trusts that the FDIC
should consider?
For the covered institutions subject to part 370, what cost and time frame might be required to update information technology systems and deposit account records to be capable of calculating insurance coverage under the proposed rule? The FDIC also seeks any supporting information that commenters might be able to provide on this topic.
II. Amendments to Mortgage Servicing Account Rule
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A. Policy Objectives The FDICs regulations governing deposit insurance coverage include specific rules on deposits maintained at IDIs by mortgage servicers. These rules are intended to be easy to understand and apply in determining the amount of deposit insurance coverage for a mortgage servicers deposits. The FDIC
also seeks to avoid uncertainty concerning the extent of deposit insurance coverage for such deposits, as deposits in mortgage servicing accounts MSAs provide a source of funding for IDIs.

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The FDIC is proposing an amendment to its rules governing insurance coverage for deposits maintained at IDIs by mortgage servicers that consist of mortgagors principal and interest payments. 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 mortgage servicing accounts, described below, 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.
B. Background and Need for Rulemaking The FDICs rules governing coverage for mortgage servicing accounts were adopted in 1990 following the transfer of responsibility for insuring deposits of savings associations from the FSLIC to the FDIC. Under the rules adopted in 1990, funds representing payments of principal and interest were insured on a pass-through basis to mortgagees, investors, or security holders. In adopting this rule, the FDIC focused on the fact that principal and interest funds were generally owned by investors, on whose behalf the servicer, as agent, accepted principal and interest payments. By contrast, payments of taxes and insurance were insured to the mortgagors or borrowers on a passthrough basis because the borrower owns such funds until tax and insurance bills are paid by the servicer.
In 2008, however, the FDIC
recognized that securitization methods and vehicles for mortgages had become more complex, exacerbating the difficulty of determining the ownership of deposits consisting of principal and interest payments by mortgagors and extending the time required to make a deposit insurance determination for deposits of a mortgage servicer in the event of an IDIs failure.63 The FDIC
expressed concern that a lengthy insurance determination could lead to continuous withdrawal of deposits of 63 See
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73 FR 61658, 6165859 Oct. 17, 2008.

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principal and interest payments from IDIs and unnecessarily reduce a funding source for such institutions. The FDIC
therefore amended its rules to provide coverage to lenders based on each mortgagors payments of principal and interest into the mortgage servicing account, up to the SMDIA currently $250,000 per mortgagor. The FDIC did not amend the rule for coverage of tax and insurance payments, which continued to be insured to each mortgagor on a pass-through basis and aggregated with any other deposits maintained by each mortgagor at the same IDI in the same right and capacity.
The 2008 amendments to the rules for mortgage servicing accounts did not provide for the fact that servicers may be required to advance their own funds to make payments of principal and interest on behalf of delinquent borrowers to the lenders. However, this is required of mortgage servicers in some instances. For example, insured depository institutions covered by 12
CFR part 370, the FDICs rule requiring recordkeeping and information technology capabilities for deposit insurance purposes covered institutions, identified challenges to implementing certain recordkeeping requirements with respect to MSA
deposit balances as a result of the way in which servicer advances are administered and accounted.64
The current rule provides coverage for principal and interest funds only to the extent paid into the account by the mortgagors; it 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. As a result, advances are not provided the same level of coverage as other deposits in a mortgage servicing account consisting of principal and interest payments directly from the borrower, which are insured up to the SMDIA for each borrower.
Instead, the advances are aggregated and insured to the servicer as corporate funds for a total of $250,000. The FDIC
is concerned that this inconsistent treatment of principal and interest amounts could result in financial instability during times of stress, and could further complicate the insurance determination process, a result that is inconsistent with the FDICs policy objective.
64 In order to fulfill their contractual obligations with investors, covered institutions maintain mortgage principal and interest balances at a pool level and remittances, advances, advance reimbursement and excess funds applications that affect pool-level balances are not allocated back to individual borrowers.

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