The FDIC has enacted an interim final rule, effective immediately, to simplify the deposit insurance rules for accounts held at FDIC-insured institutions by mortgage servicers.

Under previous rules, accounts maintained by a mortgage servicer comprised of principal and interest payments made by borrowers were insured based on the ownership interest of each lender (or investor) in those accounts. As securitization methods became more complex, it became more difficult and time-consuming for a servicer to identify and determine the share of any investor in a securitization and in the principal and interest funds on deposit at an insured depository institution.

Under the interim rule, coverage is provided to the lenders and/or investors, as a collective group, based on the cumulative amount of the borrowers’ payments of principal and interest into the account. Because servicers are able to identify borrowers more quickly than investors, the per-borrower coverage provided for under the interim rule will enable the FDIC to make deposit insurance determinations on mortgage servicing accounts more quickly and to pay deposit insurance more quickly.

The insurance coverage afforded in connection with principal and interest payments in mortgage servicing accounts will not be aggregated with or otherwise affect the coverage provided to borrowers in connection with other accounts the borrowers might maintain at the same insured depository institution.

“This simplification of the coverage rules for mortgage servicing accounts will help prevent losses to otherwise insured depositors and prevent withdrawals of deposits for principal and interest payments from depository institutions,” said FDIC Chairman Sheila Bair. “Thus, we believe the new rule will benefit both mortgage security-holders and insured institutions.”