Trust & Mortgage Servicing Deposit Insurance Rules Simplified
On January 21, 2022, the FDIC published a financial institution letter (FIL) amending the regulatory requirement (12 CFR Part 330) of deposit insurance on trust accounts and mortgage servicing accounts to simplify the definitions of coverage. The final rule will take effect April 1, 2024, which will provide just over two years for preparation.
This rule establishes a “trust accounts” category that merges the revocable and irrevocable trust categories to provide a standard insurance rule for trust accounts. This category will encompass the following types of deposits:
- Informal revocable trust deposits such as payable-on-death accounts, in-trust-for accounts, and Totten trust accounts
- Formal revocable trust deposits (defined to mean deposits held pursuant to a written revocable trust agreement under which a deposit passes to one of more beneficiaries upon the grantor’s death)
- Irrevocable trust deposits (defined to mean deposits held pursuant to an irrevocable trust established by written agreement or by statute)
This rule does not apply, however, to deposits maintained by an insurance depository institution in its capacity as trustee of an irrevocable trust.
Under the new rule, each grantor’s trust deposit will be insured up to the standard $250,000 multiplied by the number of eligible beneficiaries (defined under the current revocable trust rule) up to five. This means the maximum coverage for a grantor’s trust deposits at each depository institution will be $1.25 million. The expectation is that this new standard will allow financial institutions to better facilitate payment of deposit insurance amounts by simplifying the determination process.
The rule also provides more consistent deposit insurance requirements for all mortgage servicing account balances for principal and interest payments. The rule will provide consistent treatment for all mortgage servicing account deposit balances whether they are paid into the account by borrowers or another party.
Accounts maintained by a mortgage servicer in an agent, custodial, or fiduciary capacity will be insured for the cumulative balance paid into the account up to $250,000 per mortgagor. This is consistent with the current coverage rules for payments of principal and interest collected directly from borrowers. The final rule also expands deposit insurance in cases where accounts are maintained by a mortgage servicer to satisfy obligations of delinquent borrowers to a lender, or foreclosure proceeds collected by servicers.
This rule does not apply to deposit insurance coverage for mortgage servicing accounts for escrow purposes.
The agency does not expect that the final rule will have a significant economic effect on a substantial number of small entities. However, a review of your deposit relationships will help you determine the impact of this rule on your institution and provide a window for adjusting those accounts or relationships as necessary.