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News Release

New Jersey Department of
Banking and Insurance

Commissioner Tom Considine

For Immediate Release:
March 14, 2011

For Further Information:
Ed Rogan or Marshall McKnight (609) 292-5064

Department Proposes Waiver Guidelines to Increase Availability of Mortgage Guaranty Insurance by Financially Sound Insurers

Carefully Providing Greater Flexibility Will Help Stimulate Housing Market

TRENTON –The New Jersey Department of Banking and Insurance has proposed regulations that will temporarily allow financially healthy companies offering mortgage guaranty insurance, which covers lenders for losses if a borrower defaults on a mortgage loan, to seek a waiver of some financial requirements. Granting that waiver will ensure the continued widespread availability of mortgage guaranty insurance, also known as private mortgage insurance (PMI), which is generally required for prospective home buyers who make less than a 20 percent down payment when purchasing their home, and will help stimulate the housing market.

The proposed regulations will allow mortgage guaranty insurers to seek a temporary waiver of the current requirement that their companies maintain a 25-to-1 ratio of liability-to-policyholder surplus. The 25:1 ratio of liability to policyholder surplus is a regulatory benchmark required of a mortgage insurer. The ratio is the company’s total liability compared to the excess or surplus that may not be needed to pay claims. This is one of many financial soundness measurements regulators use to evaluate a mortgage insurer's solvency. The proposed regulations, which appeared in the New Jersey Register on February 1, 2011, will implement a law, P.L. 2010 c. 93, signed by Governor Chris Christie on November 30, 2010. There is a 60-day comment period before the proposed regulations can be adopted.

“Temporarily waving this requirement will be good for home buyers, good for the housing market and good for financially healthy mortgage guaranty insurers,” said Commissioner Tom Considine. “As a result of the difficult economy and the high number of foreclosures over the last three years, some mortgage guaranty insurance carriers that are financially sound are having trouble meeting the liability-to-policyholder surplus ration requirement.”

“That is in no way a reflection of their viability, solvency or their overall ability to do business. These proposed regulatory changes maintain consumer protections, continue the effective oversight of the solvency of mortgage insurers by the Department and ensure that mortgage guaranty insurance is available for prospective home buyers. Thus these regulations will be simultaneously stimulative of and protective of the economy,” he said.

Last year, several mortgage guaranty insurers who were well capitalized informed the Department that their liability-to-policyholders surplus ratios were nearing the 25:1 level. Subsequently, legislation was passed that provided the Commissioner with the authority to grant waivers during a three-year period that ends in January 2014.

In reviewing potential waivers, the Commissioner will consider such factors as: the size of the mortgage guaranty insurer, the extent to which the insurer is diversified in the business it writes and the company’s reinsurance program. The Commissioner will consider those and many other factors in deciding whether the insurer’s surplus is reasonable and adequate to meet its financial needs and to protect consumers.

“We will not grant this waiver lightly. Applicants will have to meet a rigorous set of criteria. We will make sure that as we grant waivers to qualified insurance carriers, we maintain vital consumer protections,” said Considine.

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New Jersey Department of Banking and Insurance