mortgage guaranty insurance
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Committee on Financial Institutions & Insurance |
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W/D |
Committee on Commerce & Economic Development |
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DP |
Caucus and COW |
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DP |
Third Read |
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X |
As Passed the House |
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SB 1161 increases the loan to value (LTV) ratio for mortgage guaranty insurance to 103 percent of the market value of a home and establishes a file and use system for mortgage insurance. The bill also modifies state laws relating to contingency reserves for reinsurance.
SB 1161 passed the House unamended.
Mortgage guarantee insurance is often required by lenders as security to cover losses in the event of loan default. It is most often required of new homeowners investing less than twenty percent of a down payment on the purchase price of a home. Laws 2000 (Chapter 262) amended state law to increase the mortgage guaranty insurance from 97 to 100 percent of the fair market value of a home. Since enactment of the legislation, many states have increased the loan to value to 103 percent in an effort to assist borrowers in covering closing costs. The proposed legislation increases the current permitted loan amount from 100 percent to 103 percent of the fair market value of the home and specifies that any percentage greater than 100 percent shall be used to finance fees and closing costs on the indebtedness.
The Department of Insurance has begun implementation of its “speed to market initiative” streamlining the review and approval process of forms. SB 1161 adopts a similar file and use system for mortgage guaranty insurance whereby forms are filed with the department and are deemed approved after thirty days and rates on file with the department are deemed approved after fifteen days.
Currently, a mortgage guaranty insurer must place 50% of all earned premiums into a contingency reserve to pay out claims that exceed an insurer’s projected losses. An insurer cannot withdraw monies from the reserve unless the insurer has incurred losses that exceed 35% of the annual contributions made to the contingency reserve. SB 1161 makes conforming changes with other primary mortgage guaranty jurisdictions to reflect a net earned premium for both deposit requirements and loss expenses that trigger withdrawals.
· Removes mortgage guaranty insurance from the article regulating rates and rating organizations.
· Increases the allowed loan amount for a home mortgage from 100 percent to 103 percent of the fair market value of the home and specifies that any percentage greater than 100 percent is used to finance fees and closing costs on the indebtedness.
· Provides that filed rates are to be on file at the Department of Insurance for a period of fifteen days before it becomes effective. Policy forms or endorsements filed with the department are to remain on file for thirty days before an insurer may issue them for delivery in the state.
· Stipulates an insurer can reduce the face amount of a mortgage for reinsurance assigned to a domestic, foreign or alien captive insurer, provided the captive insurer secures its obligations.
· Clarifies the amount contributed by an insurer to the contingency reserve is the greatest of either 50 percent of the net earned premium or the minimum policyholder position divided by ten.
· Provides that an insurer can make withdrawals from the contingency reserve if the actual incurred losses and loss expenses exceed 35 percent of the net earned premiums.
· Makes conforming and technical changes.
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45th Legislature
Second Regular Session 2 April
23, 2002
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