Servicing Guide

Published September 18, 2018

A4-1-02: Establishing Custodial Bank Accounts (04/12/2017)

The servicer must hold in a custodial bank account any funds it receives for a portfolio mortgage loan or a MBS mortgage loan. The servicer is responsible for the safekeeping of custodial funds at all times. Even if the servicer has complied with all of the requirements of the Servicing Guide, Fannie Mae will hold the servicer responsible for any loss of funds deposited in a custodial account and any damages Fannie Mae suffers because of delays in obtaining the funds from the custodial account.

The servicer must provide Fannie Mae with a status of the funds in the custodial account at the end of each month.

The servicer must follow the procedures in F-1-03, Establishing and Implementing Custodial Accounts for requirements for establishing, implementing, and monitoring custodial accounts and drafting arrangements.

Also see A2-1-02, Servicer’s Duties and Responsibilities Related to MBS Mortgage Loans for additional information.

This topic contains the following:

Eligible Custodial Depositories

All custodial accounts (and clearing accounts) for mortgage loans with a scheduled/scheduled remittance type must be established in a Federal Reserve Bank, a Federal Home Loan Bank, or another depository institution provided that such other depository institution meets the requirements listed in the following table.

Item The depository institution must…
a.

Have accounts that are insured by the FDIC or the NCUSIF.

b.

Be rated as ”well capitalized” by its federal or state regulator.

c.

Have a financial rating that meets at least one of the following criteria:

  • Institutions with assets of $30 billion or more must have either

    • a short-term issuer rating by S&P of ”A-3” (or better) or, if no short-term issuer rating is available by S&P, a long-term issuer rating of ”BBB-” (or better) by S&P; or

    • a short-term bank deposit rating by Moody’s of ”P-3” (or better) or, if no short-term bank deposit rating is available by Moody’s, a long-term bank deposit rating of ”Baa3” (or better) by Moody’s.

  • Institutions with assets of less than $30 billion must have a financial rating of either

    • 125 (or better) by IDC, or

    • C+ (or better) by Kroll.

If a depository institution satisfies the standards in (a) and (b) and has a rating that meets or exceeds at least one of the applicable ratings specified in (c) above, it will be an eligible depository even if it is rated by another organization below the minimum level specified in (c).

The servicer must keep its custodial accounts for mortgage loans with either actual/actual or scheduled/actual remittance types (or both) in a Federal Reserve Bank, a Federal Home Loan Bank, or a depository institution that satisfies the standards in (a) and (b) in the previous table, and has a financial rating of either

  • 75 (or better) by IDC, or

  • C (or better) by Kroll.

The servicer must monitor these ratings based on the frequency used by the ratings agency for publishing and updating rating changes to determine the continued eligibility of a depository institution.

Fannie Mae may require that funds be transferred out of a depository institution — even if the institution satisfies Fannie Mae’s financial rating criteria — or more quickly than indicated above if Fannie Mae decides that it is in its best interests or the interests of MBS investors to do so.

Remedies for Ineligible Custodial Depository

The servicer must notify Fannie Mae within three business days when its custodial depository fails to meet Fannie Mae’s eligibility requirements. If the servicer’s custodial depository that holds P&I or T&I funds becomes an ineligible depository by failing to meet Fannie Mae’s requirements for custodial depositories, Fannie Mae may implement one or more remedies with respect to the disposition of those P&I and T&I funds.

The specific remedies that are available to Fannie Mae may vary depending on the magnitude of P&I and T&I custodial funds the servicer and its affiliates collect and hold on Fannie Mae’s behalf and the amount of risk to these P&I and T&I funds assessed, as well as other factors determined by Fannie Mae and include, but are not limited to those described in the following table.

Specific remedies for ineligible custodial depository

Transfer funds to an eligible custodial depository.

Move funds to a trust account as directed by Fannie Mae.

Hold P&I and T&I funds in a custodial account in amounts fully insured by the FDIC or NCUSIF, or other governmental insurer or guarantor acceptable to Fannie Mae.

Require more frequent remittances to Fannie Mae (on a schedule directed by Fannie Mae) while allowing funds to remain in the ineligible custodial depository account.

P&I Custodial Accounts

The servicer must maintain separate P&I custodial accounts for each remittance type for Fannie Mae mortgage loans under which the servicer reports. The servicer, at its discretion, is authorized to maintain multiple P&I custodial accounts per remittance type. For scheduled/scheduled remittance types, the servicer must establish at least two P&I custodial accounts, to ensure P&I funds for MBS pools are not commingled with those of portfolio mortgage loans or with other funds the servicer collects, if applicable.

If the servicer deposits funds for various MBS pools serviced into the same P&I custodial account, the servicer must maintain detailed accounting records for each pool’s contribution to the custodial account and be able to identify the portion of the funds that are due from each pool for its respective P&I remittances.

P&I and T&I funds must not be commingled in the same custodial account, regardless of the remittance type.

The funds in the P&I custodial account must relate to mortgage P&I payments due Fannie Mae that were

  • received from the borrower;

  • applied from an interest rate buydown account; or

  • advanced by the servicer to cover a scheduled amount, including:

    • principal curtailments,

    • payments in full,

    • proceeds from a third-party foreclosure sale, and

    • repurchase proceeds.

The servicer also must deposit into the P&I custodial account other funds that are due for remittance to Fannie Mae including:

  • guaranty fees,

  • guaranty fee buydown charges,

  • upfront commitment fees,

  • pair-off fees,

  • extension fees,

  • LLPAs related to mortgage loans in MBS pools, and

  • special remittances related to portfolio and MBS mortgage loans or to acquired properties.

The servicer must deposit any excess servicing fee that has been securitized in an MBS P&I custodial account at the same time the related P&I payment is credited to the P&I custodial account.

T&I Custodial Accounts

The servicer is authorized to

  • commingle T&I escrow funds for all remittance types for Fannie Mae mortgage loans in the same custodial account, or

  • establish multiple T&I custodial accounts for each remittance type, and

  • establish separate T&I accounts for the deposit of property or flood insurance loss drafts, partial payments, rental income, or unapplied (suspense) funds.

Funds in the T&I custodial account may not be commingled with P&I funds, the servicer’s general corporate funds or with funds held by the servicer for other investors.

The servicer must use the T&I custodial account for the following types of funds:

  • escrow deposits collected for the payment of escrow related expenses;

  • advances the servicer made to cover servicing advances required for payment of foreclosure-related expenses, as well as the T&I for delinquent mortgage loans;

  • interest rate buydown accounts, to the extent that the amount is not yet scheduled for application to a monthly payment; and

  • payments that are being held as unapplied (suspense) pending a determination of their proper application, which include, but are not limited to

    • partial payments,

    • property or flood insurance loss drafts,

    • payment overages or shortages, or

    • rental income.

Interest-Bearing Accounts

All custodial accounts established for P&I funds or T&I funds may be interest-bearing accounts. Interest-bearing accounts must meet all federal, state, and local laws and government regulations. All funds in a custodial account must be immediately available on demand, without the servicer (or Fannie Mae) having to provide advance notice of its intent to withdraw funds or pay a penalty fee for early withdrawals. The servicer is responsible for the payment of any penalties related to excess withdrawals if the servicer chooses to maintain custodial funds in accounts that limit the number of withdrawals (such as money-market accounts).

Investment of custodial funds is not permitted.

Funds in a custodial account may not be invested in any vehicle that

  • limits Fannie Mae’s access to the funds,

  • requires an advance notice of withdrawal, or

  • requires the payment of a withdrawal penalty.

The servicer must agree to the conditions outlined in the following table when it uses an interest-bearing account to accumulate funds.

Conditions for using an interest-bearing account

Within 30 days after interest is credited to the T&I account, the servicer must disburse it from the account, paying any interest related to escrowed funds (less administrative expenses related to maintenance of the account) to the borrower where required by applicable law and/or contract.

The servicer must pay any expenses, losses, damages, or withdrawal penalties sustained because the borrower’s escrow funds were not in a demand deposit account.

Subservicing Custodial Accounts

When a subservicing arrangement exists, the subservicer must establish separate custodial accounts for all Fannie Mae mortgage loans that it either

  • subservices for a master servicer, or

  • services directly for Fannie Mae or any other investor.

Note: The use of subservicer custodial accounts does not relieve the master servicer of its responsibilities for establishing the required custodial accounts and ensuring that the custodial funds are handled in accordance with Fannie Mae’s requirements.

Use of Clearing Accounts

The servicer may use general ledger or internal operating accounts as clearing accounts provided that

  • the institution is an eligible depository and meets the requirements outlined in Eligible Custodial Depositories,

  • the account is titled to indicate it is custodial in nature and includes ”for the benefit of Fannie Mae” in the account title,

  • the deposits are subsequently recorded in a separate custodial account meeting Fannie Mae’s custodial requirements within one business day (including any period during which funds were in a clearing account or general ledger account) of receipt from the borrower, and

  • adequate records and audit trails must be maintained to support all credits to, and charges from the borrower’s payment records and the clearing accounts.

Related Announcements

The following table provides references to Announcements that are related to this topic.

Announcements Issue Date
Announcement SVC-2017-04 April 12, 2017
Announcement SVC–2015–13 October 14, 2015
Announcement SVC–2015–04 March 18, 2015