FDIC Moves to Increase Deposit Insurance Coverage for Servicers

The decision to simplify the rules comes on the heels of the failure of IndyMac Bank, which maintained a relationship with its own huge mortgage servicing platform, according to HW sources. FDIC officials have had a difficult time determining what funds were insured and what deposited funds were not.

“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.”

It also means that servicing accounts are largely fully insured, which is the ultimate net effect of the rule change.