The Federal Deposit Insurance Corp. voted yesterday to tighten rules that affect banks and savings institutions devoting a large part of their business to collecting mortgage payments.
But in a shift that significantly benefits Standard Federal Savings Bank of Gaithersburg and other institutions with large holdings in what are called mortgage-servicing contracts, the agency's board did not go nearly as far as it had originally proposed.
Under the plan approved 4-0 by the board yesterday, institutions may hold no more than 50 percent of their capital in mortgage-servicing contracts. The FDIC rule had originally proposed a 25 percent limit. There currently is no limit, and in the past, thrifts counted the entire value of the contracts toward minimum capital requirements. Capital is the amount of money that thrift owners must reserve on the books to protect the FDIC deposit insurance fund.
In addition, the board eased grandfather provisions, allowing institutions to let all contracts in place as of February 1990 run out over time.
Standard Federal, which services more mortgages than any other thrift in the country, had lobbied against the original proposal. Federal regulators had said two months ago that the rules would have forced Standard Federal into insolvency. Under the rules as originally proposed, the Gaithersburg thrift would have had to raise $100 million in cash to keep operating its mortgage-servicing business.
"We are very pleased," said Emmett R. Garlock, president and chief executive officer of Standard Federal. Garlock said Standard Federal could have met the original requirements, but "this makes it much easier to comply."
He noted that the FDIC rules will allow institutions to retain mortgage servicing in separately capitalized subsidiaries, and that "subservicing," of which he said Standard Federal does a great deal, can continue without limit. In subservicing, the institution does the mechanics of collecting loan payments, but does not itself own the servicing contract.
Mortgage-servicing rights are sold among financial institutions. After purchasing the rights, institutions can earn a steady stream of fees for collecting payments, which they forward to the owner of the mortgage.