California Legislature—2015–16 Regular Session

Assembly Bill No. 1645

Introduced by Assembly Member Dababneh

January 12, 2016

An act to amend and repeal Section 12640.09 of the Insurance Code, relating to insurance.

LEGISLATIVE COUNSEL’S DIGEST

AB 1645, as introduced, Dababneh. Mortgage guaranty insurance.

Existing law, beginning January 1, 2018, requires, among other things, that a mortgage guaranty insurer limit its coverage to no more than a net of 30% at risk of the entire indebtedness to the insured for the class of insurance that insures against financial loss by reason of nonpayment of principal, interest, and other sums under any evidence of indebtedness secured by a mortgage, deed of trust, or other instrument constituting a first lien or charge on a residential building or a condominium unit or buildings designed for occupancy by not more than 4 families. Existing law, beginning January 1, 2018, also authorizes a mortgage guaranty insurer to extend its coverage for this class of insurance beyond the established limits if the excess is insured by a contract of reinsurance.

This bill would delete the above provisions.

Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

Section 12640.09 of the Insurance Code, as
amended by Section 1 of Chapter 105 of the Statutes of 2012, is
amended to read:

12640.09.  

(a) A mortgage guaranty insurer shall limit its
coverage for the class of insurance defined in paragraph (3) of
subdivision (a) of Section 12640.02 to no more than a net of 30
percent at risk of the entire indebtedness to the insured or, begin delete in lieu
thereof, end delete a mortgage guaranty insurer may elect to pay the entire
indebtedness to the insured and acquire title to the authorized real
estate security.

(b) (1) A mortgage guaranty insurer shall limit its coverage for
the class of insurance defined in paragraph (2) of subdivision (a)
of Section 12640.02, to no more than a net of 30 percent of risk
of the combined indebtedness of all existing mortgage loan
amounts secured by all liens or charges on the real estate. begin delete In lieu
thereof, end delete begin insert Instead, end insert a mortgage guaranty insurer may elect to pay the
entire indebtedness to the insured and acquire title to the authorized
real estate security.

(2) Notwithstanding paragraph (1), a mortgage guaranty insurer
may elect to insure a portfolio of loans secured by instruments
constituting junior liens on real estate, begin delete provided that end delete begin insert if end insert the total
amount at risk in any one portfolio shall not at any time exceed
20 percent of the original principal amount of mortgage loans
secured by junior liens.

(3) If the borrower is required to pay the cost of insurance
written under paragraph (1) or (2), the lender shall disclose in
writing to the borrower that the borrower is not a party to or a
beneficiary of the mortgage guaranty insurance policy.

(4) Notwithstanding subdivision (a) and paragraph (1) of
subdivision (b), if Freddie Mac or Fannie Mae increases the
required amount of mortgage guaranty insurance, the commissioner
may adopt regulations to increase the maximum coverage limitation
of a mortgage guaranty insurer to an amount not to exceed a net
of 35 percent of risk of the entire indebtedness.

(c) Notwithstanding subdivision (a) or (b), a mortgage guaranty
insurer may extend its coverage for the class of insurance defined
in paragraphs (2) and (3) of subdivision (a) of Section 12640.02
beyond the limits established by subdivisions (a) and (b) of this
section, begin delete provided end delete begin insert if end insert the excess is insured by a contract of
reinsurance.

(d) (1) Notwithstanding any begin delete provision of end delete law to the contrary,
mortgage guaranty insurance or reinsurance may be ceded by
contract, begin delete provided that end delete begin insert if end insert the assuming insurer is either of the
following:

(A) A mortgage guaranty insurer, which may be under common
control with the ceding mortgage guaranty insurer, but which does
not own, and is not owned by, in whole or in part, directly or
indirectly, the ceding mortgage guaranty insurer.

(B) An insurer or reinsurer, that may be under common control
with the ceding mortgage guaranty insurer, but that is not owned
by, in whole or in part, directly or indirectly, the ceding mortgage
guaranty insurer or another mortgage guaranty insurer, that writes
any type or types of insurance or reinsurance and that meets the
following requirements:

(i) Has paid-in capital and paid-in surplus totaling at least
thirty-five million dollars ($35,000,000).

(ii) Derives, on an annual basis, at least 50 percent of its
premium income from reinsurance; or, alternatively, derives at
least twenty-five million dollars ($25,000,000) of premium income
per year from reinsurance.

(iii) Establishes and maintains its share of the reserve liabilities
required by Section 12640.16 if licensed in this state, or establishes,
maintains, and funds in accordance with Section 922.4 or 922.5,
its share of the reserve liabilities required by Section 12640.16 if
not licensed in this state.

(iv) Establishes and maintains its share of an amount equal to
the greater of either the reserve liabilities required by Section
12640.04 or the policyholders surplus required by Section 12640.05
in a segregated trust which meets the requirements of Section
12640.091.

(2)  begin delete Nothing herein contained shall be deemed to end delete begin insert This section
does not end insert permit the assuming insurer or reinsurer to directly write
mortgage guaranty insurance.

(3) Any assuming insurer or reinsurer and the ceding mortgage
guaranty insurer shall establish and maintain in the aggregate the
reserves required by Sections 12640.04 and 12640.16.

(e) This section begin delete shall end delete begin insert does end insert not apply to the California Housing
Loan Insurance Fund or to any program it may develop in
conjunction with any federal or federally sponsored mortgage
lender or insurer.

begin delete

(f) This section shall remain in effect only until January 1, 2018,
and as of that date is repealed, unless a later enacted statute, that
is enacted before January 1, 2018, deletes or extends that date.

end delete

SEC. 2.  

Section 12640.09 of the Insurance Code, as added by
Section 2 of Chapter 105 of the Statutes of 2012, is repealed.

begin delete

12640.09.  

(a) A mortgage guaranty insurer shall limit its
coverage for the class of insurance defined in paragraphs (1) and
(3) of subdivision (a) of Section 12640.02 to no more than a net
of 30 percent at risk of the entire indebtedness to the insured or,
in lieu thereof, a mortgage guaranty insurer may elect to pay the
entire indebtedness to the insured and acquire title to the authorized
real estate security.

(b) (1) A mortgage guaranty insurer shall limit its coverage for
the class of insurance defined in paragraph (2) of subdivision (a)
of Section 12640.02, to no more than a net of 30 percent of risk
of the combined indebtedness of all existing mortgage loan
amounts secured by all liens or charges on the real estate. In lieu
thereof, a mortgage guaranty insurer may elect to pay the entire
indebtedness to the insured and acquire title to the authorized real
estate security.

(2) Notwithstanding paragraph (1), a mortgage guaranty insurer
may elect to insure a portfolio of loans secured by instruments
constituting junior liens on real estate, provided that the total
amount at risk in any one portfolio shall not at any time exceed
20 percent of the original principal amount of mortgage loans
secured by junior liens.

(3) If the borrower is required to pay the cost of insurance
written under paragraph (1) or (2), the lender shall disclose in
writing to the borrower that the borrower is not a party to or a
beneficiary of the mortgage guaranty insurance policy.

(4) Notwithstanding subdivision (a) and paragraph (1) of
subdivision (b), if Freddie Mac or Fannie Mae increases the
required amount of mortgage guaranty insurance, the commissioner
may adopt regulations to increase the maximum coverage limitation
of a mortgage guaranty insurer to an amount not to exceed a net
of 35 percent of risk of the entire indebtedness.

(c) Notwithstanding subdivision (a) or (b), a mortgage guaranty
insurer may extend its coverage for the class of insurance defined
in paragraphs (1), (2), and (3) of subdivision (a) of Section
12640.02 beyond the limits established by subdivisions (a) and
(b) of this section, provided the excess is insured by a contract of
reinsurance.

(d) (1) Notwithstanding any provision of law to the contrary,
mortgage guaranty insurance or reinsurance may be ceded by
contract, provided that the assuming insurer is either of the
following:

(A) A mortgage guaranty insurer, which may be under common
control with the ceding mortgage guaranty insurer, but which does
not own, and is not owned by, in whole or in part, directly or
indirectly, the ceding mortgage guaranty insurer.

(B) An insurer or reinsurer, that may be under common control
with the ceding mortgage guaranty insurer, but that is not owned
by, in whole or in part, directly or indirectly, the ceding mortgage
guaranty insurer or another mortgage guaranty insurer, that writes
any type or types of insurance or reinsurance and that meets the
following requirements:

(i) Has paid-in capital and paid-in surplus totaling at least
thirty-five million dollars ($35,000,000).

(ii) Derives, on an annual basis, at least 50 percent of its
premium income from reinsurance; or, alternatively, derives at
least twenty-five million dollars ($25,000,000) of premium income
per year from reinsurance.

(iii) Establishes and maintains its share of the reserve liabilities
required by Section 12640.16 if licensed in this state, or establishes,
maintains, and funds in accordance with Section 922.4 or 922.5,
its share of the reserve liabilities required by Section 12640.16 if
not licensed in this state.

(iv) Establishes and maintains its share of an amount equal to
the greater of either the reserve liabilities required by Section
12640.04 or the policyholders surplus required by Section 12640.05
in a segregated trust which meets the requirements of Section
12640.091.

(2) Nothing herein contained shall be deemed to permit the
assuming insurer or reinsurer to directly write mortgage guaranty
insurance.

(3) Any assuming insurer or reinsurer and the ceding mortgage
guaranty insurer shall establish and maintain in the aggregate the
reserves required by Sections 12640.04 and 12640.16.

(e) This section shall not apply to the California Housing Loan
Insurance Fund or to any program it may develop in conjunction
with any federal or federally sponsored mortgage lender or insurer.

(f) This section shall become operative on January 1, 2018.

end delete