Bulletin: TX2008005

Dear Associates:

Section 2651.002 and 2652.004 of the Texas Insurance Code prohibits disbursement from trust fund (escrow) accounts unless the company has good funds to support the disbursement. The Texas Insurance Department is given statutory power to adopt a procedure and needed forms to fulfill this purpose. The Department has done so in Procedural Rule P-27 and adopted three-party forms for use under T-37 and T-37a (agent designation for federally insured lender).

The rule and the forms provide that a federally insured lender, a title company and a mortgage company or financial institution making a mortgage loan may enter into an agreement whereby the title company receives a check from the mortgage company and obtains a funding number from the lender which, in essence, guarantees that the federally insured lender will honor the mortgage companies check. The agreement and the funding number then have the effect of making the check into good funds.

We have recently seen an increase in bank failures with the result that we recommend that you should review all of your immediately available funds agreements to see that you are comfortable with the financial standing of the federally insured lender as well as the mortgage company or other lender actually providing the funds. You should consider a similar review if asked to enter into any new good funds agreements.

How do you get comfortable with the financial status of the bank?

Please see the following text from the website of the Office of the Comptroller of the Currency (http://www.occ.treas.gov/pubinf.htm):

"How to Find Public Information on the Web about Individual Banks

One way to get public information about an individual bank is to go to a website maintained by a federal bank regulator: the Office of the Comptroller of the Currency (national banks), the Federal Reserve Board (state chartered banks that are members of the Federal Reserve System and bank holding companies) and the Federal Deposit Insurance Corporation (insured state banks that are not members of the Federal Reserve System). These agencies maintain records about the banks they supervise. If you want to find out about a financial institution that is not a bank, you can visit the website maintained by the Office of Thrift Supervision (savings and loans) or the National Credit Union Administration (credit unions).

If the bank you're interested in is a national bank, you are already at the right site. The Office of the Comptroller of the Currency (OCC) maintains a variety of public information about the national banking system. If you do a search about the bank you're researching you may find a list of OCC documents in which your bank is mentioned. Documents can include, for example, a corporate application filed by your bank to merge with another bank or to engage in an innovative activity. You'll also find evaluations of your bank's performance under the Community Reinvestment Act (CRA), or information about an enforcement action the OCC may have imposed (or withdrawn) on the bank. Since much of the public information about a national bank is not available electronically, you also can contact the OCC's Communications Division to find out how to get paper-based information.

If you don't know which federal agency is the primary regulator of the bank you're interested in, you can go the Federal Deposit Insurance Corporation (FDIC) website and click on the Institution Directory. Enter the name of the bank and you will get a list of likely matches (many banks have similar names). The FDIC is also a good source to get statistical information about individual banks, including national banks. For example, you can get demographic data and financial profiles derived from quarterly reports filed with federal regulators. The Federal Reserve Board's National Information Center of Banking Information also may be useful, because it has balance sheet and income information about banks and bank holding companies."

We understand that it may be impossible for any agent or office to be totally confident with the information available about the financial status of any party to a T-37 or T-37a; however, availing yourself of the resources available provides some due diligence to protect you and your customers' funds.

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