Current through all regulations passed and filed through September 16, 2024
(A) Purpose
The purpose of this rule is to implement division (A)(24) of
section
3929.01
of the Revised Code, as it pertains to the writing and servicing of that kind
of insurance known as mortgage guaranty insurance as hereinafter
defined.
(B) Authority
This rule is promulgated pursuant to the authority vested in
the superintendent under section
3901.041
of the Revised Code.
(C)
Definitions
The definitions set forth in this rule shall govern the
construction of the terms used in this rule:
(1) "Mortgage guaranty insurance" is:
(a) Insurance against financial loss by
reason of nonpayment of principal, interest or other sums agreed to be paid
under the terms of any note or bond or other evidence of indebtedness secured
by a mortgage, deed of trust, or other instrument constituting a lien or charge
on real estate, provided the improvement on such real estate is a residential
building or a condominium unit or buildings designed for occupancy by not more
than four families; or
(b)
Insurance against financial loss by reason of nonpayment of principal, interest
or other sums agreed to be paid under the terms of any note or bond or other
evidence of indebtedness secured by a mortgage, deed of trust or other
instrument constituting a lien or charge on real estate, providing the
improvement on such real estate is a building or buildings designed for
occupancy by five or more families or designed to be occupied for industrial or
commercial purposes; or
(c)
Insurance against financial loss by reason of nonpayment of rent or other sums
agreed to be paid under the terms of a written lease for the possession, use or
occupancy of real estate, provided the improvement on such real estate is a
building or buildings designed to be occupied for industrial or commercial
purposes.
(2)
"Authorized real estate security" for the purpose of this rule means a note,
bond or other evidence of indebtedness, not exceeding one-hundred and three per
cent of the lower of the fair value as fixed by appraisal or purchase price of
the real estate, secured by a mortgage, deed of trust, or other instrument
which constitutes, or is equivalent to, a first lien or charge on real estate,
provided:
(a) Any percentage in excess of
one-hundred per cent is used only for closing costs.
(b) The real estate loan secured in such
manner is one of a type which:
(i) A
bank,
(ii) A building and loan
association, federal savings and loan, or a service corporation of either,
or
(iii) An insurance company,
which is supervised and regulated by a department of the state of Ohio or an
agency of the federal government, is authorized to make, or would be authorized
to make, disregarding any requirement applicable to such an institution that
the amount of the loan not to exceed a certain percentage of the value of the
real estate.
(c) The
improvement on such real estate is a building or buildings designed for
occupancy as specified by paragraphs (C)(1)(a) and (C)(1)(b) of this
rule.
(d) The lien on such real
estate may be subject to and subordinate to the following:
(i) The lien on any public bond, assessment
or tax, when no installment, call or payment of or under such bond, assessment
or tax is delinquent.
(ii)
Outstanding mineral, oil, water or timber rights, rights-of-way, easements or
rights-of-way of support, sewer rights, building restrictions or other
restrictions or covenants, conditions or regulations of use, or outstanding
leases upon such real property under which rents or profits are reserved to the
owner thereof.
(3) "Contingency reserve" means an additional
premium reserve established to protect policyholders against the effect of
adverse economic cycles.
(D) Capital and surplus
A mortgage guaranty insurance company shall not transact the
business of mortgage guaranty insurance in the state of Ohio unless: if a stock
insurance company, it has capital and surplus in the aggregate amount of not
less than two million five hundred thousand dollars, which aggregate shall
include paid-in capital of not less than one million and contributed surplus of
not less than one million or if a mutual insurance company, a minimum surplus
of two million five hundred thousand dollars.
(E) Limitations and restrictions on
transacting business
(1) Mortgage guaranty
insurance may be transacted in this state by insurers fulfilling the
requirements of paragraph (E)(6) of this rule and holding a certificate of
authority for the transaction of such insurance pursuant to Title XXXIX of the
Revised Code and shall be written only to insure loans secured by authorized
real estate securities as defined in paragraph (C)(2) of this rule.
(2) Geographic concentration
(a) A mortgage guaranty insurance company
shall not insure loans secured by a single risk in excess of ten per cent of
the company's aggregate capital, surplus and contingency reserve.
(b) No mortgage guaranty insurance company
shall have more than twenty per cent of its total insurance in force in any one
metropolitan statistical area
("MSA") as defined by the United States office of management and budget.
(3) Advertising
No mortgage guaranty insurance company or any agent or
representative of a mortgage guaranty insurance company shall prepare or
distribute or assist in preparing or distributing any brochure, pamphlet,
report or any form of advertising to the effect that the real estate
investments of any financial institution are "insured investments," unless the
brochure, pamphlet, report or advertising clearly states that the loans are
insured by mortgage guaranty insurance companies authorized to transact the
business of mortgage guaranty insurance in the state of Ohio or are insured by
an agency of the federal government, as the case may be.
(4) Investment limitation
A mortgage guaranty insurance company shall not invest in notes
or other evidences of indebtedness secured by a mortgage or other lien upon
real property. This section shall not apply to obligations secured by real
property or contracts for the sale of real property, which obligations or
contracts of sale are acquired in the course of the good faith settlement of
claims under policies of insurance issued by the mortgage guaranty insurance
company, or in the good faith disposition of real property so acquired.
(5) Coverage limitation
(a) A mortgage guaranty insurance company
shall limit its coverage, with respect to any one authorized real estate
security, net of reinsurance, ceded to a reinsurer unaffiliated with the
company or an affiliated reinsurer which does not own, and is not owned by, in
whole or in part, the ceding mortgage guaranty insurer, to a maximum of
twenty-five percent of the entire indebtedness to the insured under that
authorized real estate security. In lieu thereof, a mortgage guaranty insurance
company may elect to pay the entire indebtedness to the insured and acquire
title to the authorized real estate security.
(b) The coverage limits set out in paragraph
(E)(5)(a) of this rule shall not apply to a mortgage guaranty insurance company
that possesses capital and surplus in excess of twenty-five million
dollars.
(6) Mortgage
guaranty insurance as monoline
(a) A mortgage
guaranty insurance company which anywhere transacts any class of insurance
other than mortgage guaranty insurance is not eligible to transact mortgage
guaranty insurance in the state of Ohio.
(b) A mortgage guaranty insurance company
which anywhere transacts the classes of insurance defined in paragraph
(C)(1)(b) or (C)(1)(c) of this rule may not transact in the state of Ohio the
class of mortgage guaranty insurance defined in paragraph (C)(1)(a) of this
rule, provided, however, a mortgage guaranty insurance company which transacts
a class of insurance defined in paragraph (C)(1)(a) of this rule may write up
to five per cent of its insurance in force on residential property designed for
occupancy by five or more families.
(7) Underwriting discrimination
(a) Nothing in this rule shall be construed
as limiting the right of any mortgage guaranty insurance company to impose
reasonable requirements upon the lender with regard to the terms of any note or
bond or other evidence of indebtedness secured by a mortgage or deed of trust,
such as requiring a stipulated down payment by the borrower.
(b) No mortgage guaranty insurance company
may discriminate in the issuance or extension of mortgage guaranty insurance on
the basis of sex, marital status, race, color, creed, national origin, physical
handicap or mental handicap.
(c) No
policy of mortgage guaranty insurance, excluding policies of reinsurance, shall
be written unless and until the insurer itself or the lender, in compliance
with underwriting directives from the insurer and subject to periodic
underwriting audits by the insurer, shall have conducted a reasonable and
thorough examination of the evidence supporting credit worthiness of the
borrower and the appraisal report reflecting market evaluation of the property
and shall have determined that prudent underwriting standards have been
met.
(8) Policy forms
and premium rates filed
(a) All policy forms
and endorsements, and rates to be charged and the premium including all
modifications of rates and premiums to be paid by the policyholder shall be
filed with and subject to the provisions of sections
3937.01
to
3937.18
of the Revised Code. With respect to owner-occupied, single-family dwellings or
owner-occupied two family dwellings, the mortgage guaranty insurance policy
shall provide that the borrower shall not be liable to the insurance company
for any deficiency arising from a foreclosure sale.
(b) Every mortgage guaranty insurance company
shall adopt, print and make available a schedule of premium charges for
mortgage guaranty insurance policies. Premium charges made in conformity with
the provisions of this rule shall not be deemed to be of interest or other
charges under any other provision of law limiting interest or other charges in
connection with mortgage loans. The schedule shall show the entire amount of
premium charge for each type of mortgage guaranty insurance policy issued by
the insurance company.
(9) Outstanding total liability
(a) A mortgage guaranty insurance company
shall not at any time have outstanding a total liability, net of reinsurance,
under its aggregate mortgage guaranty insurance policies exceeding twenty-five
times its capital, surplus and contingency reserve. In the event that any
mortgage guaranty insurance company has outstanding total liability exceeding
twenty-five times its capital, surplus and contingency reserve, it shall cease
transacting new mortgage guaranty business until such time as its total
liability no longer exceeds twenty-five times its capital, surplus and
contingency reserve.
(b) The
superintendent, in the superintendent's sole discretion, may permit a temporary
exception to the requirement set out in paragraph (E)(9)(a) of this rule at the
written request of a mortgage guaranty insurer upon a finding that the mortgage
guaranty insurer's policyholders position is reasonable in relationship to the
mortgage guaranty insurer's aggregate insured risk and adequate to its
financial needs. The request must be made in writing at least ninety days in
advance of the date that the mortgage guaranty insurer expects to exceed the
requirements of paragraph (E)(9) (a) of this rule and shall, at a minimum,
address the factors specified in paragraph (E)(9)(c) of this rule, provided,
however, that a mortgage guaranty insurance company may submit a request for
such exception within ten days after the effective date of this rule as amended
and shall be deemed to have complied with the ninety day requirement in
paragraph (E)(9)(b) of this rule.
(c) In determining whether a mortgage
guaranty insurer's policyholders position is reasonable in relation to the
mortgage guaranty insurer's aggregate insured risk and adequate to its
financial needs, the superintendent shall consider all of the following:
(i) The size of the mortgage guaranty insurer
as measured by its assets, capital and surplus, reserves, premium writings,
insurance in force and other criteria as deemed appropriate by the
superintendent.
(ii) The extent to
which the mortgage guaranty insurer's business is diversified across time,
geography, credit quality, origination, and distribution channels.
(iii) The nature and extent of the mortgage
guaranty insurer's reinsurance program.
(iv) The quality, diversification, and
liquidity of the mortgage guaranty insurer's assets and its investment
portfolio.
(v) The historical and
forecasted trend in the size of the mortgage guaranty insurer's policyholder's
position.
(vi) The policyholder's
position maintained by other comparable mortgage guaranty insurers in relation
to the nature of their respective insured risks.
(vii) The adequacy of the mortgage guaranty
insurer's reserves.
(viii) The
quality and liquidity of investments in affiliates. The superintendent may
treat any such investment as a non-admitted asset for purposes of determining
the adequacy of surplus as regards policyholders.
(ix) The quality of the mortgage guaranty
insurer's earnings and the extent to which the reported earnings of the
mortgage guaranty insurer include extraordinary items.
(x) An independent actuary's opinion as to
the reasonableness and adequacy of the mortgage guaranty insurer's historical
and projected policyholder position.
(xi) The capital contributions which have
been infused or are available for future infusion into the mortgage guaranty
insurer.
(xii) The historical and
projected trends in the components of the mortgage guaranty insurer's aggregate
insured risk, including, but not limited to, the quality and type of the risks
included in the aggregate insured risk.
(d) The superintendent may retain
accountants, actuaries, or other experts to assist the superintendent in the
review of the mortgage guaranty insurer's request submitted pursuant to
paragraph (E)(9)(b) of this rule. The mortgage guaranty insurer shall bear the
cost of retaining such experts.
(e)
Any waiver shall be for a specified time, not to exceed two years and shall be
subject to any terms and conditions imposed by the superintendent, in the
superintendent's sole discretion.
(10) High
risk underwriting
Any mortgage guaranty insurance company which receives five per
cent or more of its net annual premium from policies written to insure loans
secured by authorized real estate securities having a greater than ninety-five
per cent loan-to-value ratio shall notify the superintendent within thirty
days. The superintendent may, if the superintendent finds that further
underwriting of loans having a greater than ninety-five per cent loan-to-value
ratio would have an adverse impact on the solvency of the company, prohibit the
company from further underwriting such loans.
(F) Rebates, commissions, charges and
conflict of interest
(1) Rebates, commissions
and charges
(a) A mortgage guaranty insurance
company shall not pay or cause to be paid either directly or indirectly, to any
owner, purchaser, lessor, lessee, mortgagee or prospective mortgagee of the
real property which secures the authorized real estate security or which is the
fee of an insured lease, or any interest therein, or any person who is acting
as an agent, representative, attorney or employee of such owner, purchaser or
mortgagee, any commission, or any part of its premium charges or any other
consideration as an inducement for or as compensation on any mortgage guaranty
insurance business.
(b) In
connection with the placement of any mortgage guaranty insurance, a mortgage
guaranty insurance company shall not cause or permit any commission, fee,
remuneration, or other compensation to be paid to, or received by, any insured
lender or lessor; any subsidiary or affiliate of any insured; any officer,
director or employee of any insured or any member of their immediate family;
any corporation, partnership, trust, trade association in which any insured or
any such officer, director, or employee or member of their immediate family has
a financial interest; or any designee, trust, nominee, or other agent or
representative of any of the foregoing.
(c) No mortgage guaranty insurance company
shall make any rebate of any portion of the premium charge shown by the
schedule required by paragraph (E)(8)(b) of this rule. No mortgage guaranty
insurance company shall quote any rate or premium charge to any person which is
different than that currently available to others for the same type of
coverage. The amount by which any premium charge is less than that called for
by the current schedule of premium charges is an unlawful rebate.
(2) Conflict of interest
(a) If a member of a holding company system,
a mortgage guaranty insurance company licensed to transact business in this
state shall not knowingly underwrite mortgage guaranty insurance on mortgages
originated by the holding company system or an affiliate or on mortgages
originated by any mortgage lender to which credit is extended, directly or
indirectly, by the holding company system or any affiliate unless such
insurance is underwritten on the same basis, for the same consideration and
subject to the same insurability requirements as insurance provided to
nonaffiliated lenders.
(i) Any mortgage
guaranty insurance company which receives, in the aggregate, twenty per cent of
more of its net annual premium from policies written to insure mortgages
originated by affiliates in the holding company system shall, concurrent with
the filing of its annual statement, notify the superintendent of that
fact.
(ii) The superintendent may,
if the superintendent finds that further underwriting of policies issued on
said loans would have an adverse impact on the solvency of the company,
prohibit the mortgage guaranty insurance company for further underwriting such
loans.
(b) A mortgage
guaranty insurance company, the holding company system of which it is a part or
any affiliate shall not pay any commission, remuneration, rebates or engage in
activities proscribed in paragraph (F) (1) of this rule.
(G) Reserves
(1) Unearned premium reserves
A mortgage guaranty insurance company shall compute and
maintain an unearned premium reserve as required by the superintendent of
insurance.
(2) Loss reserve
A mortgage guaranty insurance company shall compute and
maintain adequate case basis and other loss reserves which accurately reflect
loss frequency and loss severity and shall include components for claims
reported and unpaid, and for claims incurred but not reported, including
estimated losses on:
(a) Insured loans
which have resulted in the conveyance of property which remains
unsold;
(b) Insured loans in the
process of foreclosure;
(c) Insured
loans in default for four months or for any lesser period which is defined as
default for such purposes in the policy provisions; and
(d) Insured leases in default for four months
or for any lesser period which is defined as default for such purposes in
policy provisions.
(3)
Contingency reserve
Each mortgage guaranty insurance company shall establish a
contingency reserve out of net premiums remaining (gross premiums less premiums
returned to policyholders net of reinsurance) after establishment of the
unearned premium reserve. The mortgage guaranty insurance company shall
contribute to the contingency reserve an amount equal to fifty per cent of such
remaining earned premiums. Contributions to the contingency reserve made during
each calendar year shall be maintained for a period of one hundred twenty
months, except that withdrawals may be made by the company in any year in which
the actual incurred losses exceed thirty-five per cent of the corresponding
earned premiums, and no such releases shall be made without prior approval by
the superintendent of the insurance company's state of domicile. If the
coverage provided in this rule exceeds the limitations set forth herein, the
superintendent of insurance shall establish a rate formula factor that will
produce a contingency reserve adequate for the added risk assumed. The face
amount of an insured mortgage shall be computed before any reduction by the
mortgage guaranty insurance company's election to limit its coverage to a
portion of the entire indebtedness.
(H) Reinsurance
Whenever a mortgage guaranty insurance company obtains
reinsurance from an insurance company which is properly licensed to provide
such reinsurance or from an appropriate governmental agency, the mortgage
guaranty insurer and the reinsurer shall establish and maintain the reserves
required in this rule in appropriate proportions in relation to the risk
retained by the original insurer and ceded to the assuming reinsurer so that
the total reserves established shall not be less than the reserves required by
this rule.
(I)
Miscellaneous
(1) Whenever the laws of any
other jurisdiction in which a mortgage guaranty insurance company subject to
the requirement of this rule is also licensed to transact mortgage guaranty
insurance require a larger unearned premium reserve or contingency reserve in
the aggregate than that set forth herein, the establishment of such larger
unearned premium reserve or contingency reserve in the aggregate shall be
deemed to be in compliance with this rule.
(2) Unearned premium reserves and contingency
reserves shall be computed and maintained on risks insured after the effective
date of this rule as required by paragraphs (G)(1) and (G)(3) of this rule.
Unearned premium reserves and contingency reserves on risks insured before the
effective date of this rule may be computed and maintained as required
previously.
(J)
Severability
If any paragraph, term or provision of this rule is adjudged
invalid for any reason, the judgment shall not affect, impair or invalidate any
other paragraph, term or provision of this rule, but the remaining paragraphs,
terms and provisions shall be and continue in full force and effect.
