BILL NUMBER:  S1478

 TITLE OF BILL :

An act to amend the insurance law, in relation to mortgage guaranty
insurance

 PURPOSE :

To eliminate a reinsurance requirement currently imposed on mortgage
guaranty insurance companies that is outdated, duplicative and
unnecessary.

 SUMMARY OF PROVISIONS :

This bill would repeal a section of the Insurance Law that prohibits a
mortgage guaranty insurer from insuring more than 25% of a borrower's
mortgage indebtedness to an insured lender unless the mortgage
guaranty insurer obtains reinsurance for amounts over that 25% limit.

 JUSTIFICATION :

Mortgage guaranty insurance is a type of insurance coverage that
protects banks and other lenders from losses if borrowers default on
their residential home loans.

              

To limit the exposure of mortgage guaranty insurance companies,
legislation was enacted in 1994 to require that they obtain
reinsurance for any coverage they provide that exceeds 25% of a
borrower's total indebtedness to the insured lender. For pool loans,
reinsurance is currently required on any portion of loans over 25% of
the pool's total indebtedness. This legislation was based in part on a
Mortgage Guaranty Insurance Model Act developed by the National
Association of Insurance Commissioners (NAIC).

Since the statute was enacted, the market for unaffiliated reinsurance
companies to provide the type of reinsurance contemplated by the
current law on such loans has been essentially non-existent. Over
time, mortgage guaranty insurance companies began creating affiliated
reinsurers to comply with the reinsurance requirements, preferring to
retain their own risk rather than assume those underwritten by their
competitors.

Requiring that risk and capital be divided between up to four
affiliated insurers/reinsurers instead of being concentrated in one
insurer does not provide any additional protection to insured lenders.
Instead, it has resulted in a financial and administrative burden on
mortgage guaranty insurance companies that must individually register
and maintain these affiliated but legally separate companies. For
example, in addition to the individual state licensing fees each
affiliated entity must pay, multiple licensed entities require
separate maintenance, financial accounting, actuarial opinions,
reporting and examinations.

In recognition of this problem, the NAIC is revising its Model Act to
eliminate this outdated and unnecessary requirement. In fact, 7 of the
9 states that originally enacted similar laws have since repealed this
reinsurance requirement. New York is one of only two states that has
this form of risk limitation on first-lien loans.

Passage of this legislation will have no negative effect on consumers
or the insured lenders. This legislation alleviates the unnecessary
administrative and financial burden that has been placed on the
mortgage guaranty insurance marketplace without making any changes to
risk and capital requirements.

 LEGISLATIVE HISTORY :

S.6693 of 2016.

 FISCAL IMPLICATIONS :

None.

 EFFECTIVE DATE :
Immediately.