Section 202.10  Authority and Application

 

Part 202 is promulgated pursuant to the provisions of Section 401 of the Illinois Insurance Code to regulate the writing and servicing of the kind of insurance described in Clause (h) of Class 2 of Section 4 of the Illinois Insurance Code relating to loss or damage which may result from the failure of debtors to pay their obligations, more specifically known as a mortgage guaranty insurance.

 

Section 202.20  Definitions

 

Authorized real estate security means a promissory note, bond or other evidence of indebtedness which, at the time of origination, does not, when added to any prior secured indebtedness relating to the real estate, exceed 100% of the fair market value of said real estate, and which is secured by mortgage, deed of trust, or other instrument constituting a lien or charge, provided such indebtedness represents a type of loan authorized to be made by a bank, savings and loan association, insurance company and, in the case of residential loans only, mortgage bankers regulated and supervised by a department of the State of Illinois or by an agency of the federal government of the United States of America.

 

Director means the Director of Insurance of the State of Illinois or anyone to whom the Director's responsibilities and authority are lawfully delegated.

 

Fair market value means the lesser of sales price or appraised value.

 

Mortgage guaranty insurance means insurance against financial loss by reason of the nonpayment of principal, interest and other sums agreed to be paid under the terms of:

 

A promissory note, bond or other evidence of indebtedness secured by a mortgage, deed of trust or other instrument constituting a lien or charge on improved one to four family residential or commercial real estate, including, without limitation, condominiums and owner-occupied mobile homes;

 

A promissory note, bond or other evidence of indebtedness secured by a mortgage, deed of trust, pledge or other instrument constituting a lien or charge on shares of stock evidencing ownership of a residential cooperative housing unit; or

 

A written lease for the possession, use or occupancy of improved residential or commercial real estate.

 

Mortgage pool insurance means mortgage guaranty insurance written on a group of loans insuring each one individually but which limits liability to an agreed percentage of all loans in the group.

 

Reserves shall have the following meanings:

 

Reserves for policyholders means surplus as regards policyholders and contingency reserves as reported in the last filed annual financial statement;

 

Reserve for general expenses required by Section 202.50(a) of this Part;

 

Reserve for losses outstanding required by Section 202.50(b) of this Part;

 

Reserve for unearned premiums required by Section 202.50(c) of this Part.

 

(Source:  Amended at 24 Ill. Reg. 14738, effective September 25, 2000)

 

Section 202.30  Restrictions on the Transaction of Business

 

a)         A company shall not transact the business of mortgage guaranty insurance unless it originally has and continues to have capital and surplus of at least the amounts specified in Section 13 of the Illinois Insurance Code.

 

b)         A mortgage guaranty insurance company:

 

1)         Shall not insure loans with balloon provisions unless either:

 

A)        liability for the balloon payment is specifically excluded; or

 

B)        the policy provides, by its terms, that at the time the lender calls the loan, the lender will cause to be offered new or extended financing at then market rates.

 

2)         Shall not, at any one time, have more than 20% of its insurance in force net of reinsurance ceded but including reinsurance assumed, on adjustable rate loan instruments which establish payments insufficient to fully amortize the loan over its term and negatively amortizing graduated payment mortgage which, at any time during the term of mortgage, causes the outstanding indebtedness to exceed 100% of the initial fair market value of the real estate, thereby causing the outstanding loan balance to increase following loan origination (vis, "dual rate" mortgages).

 

3)         Shall not insure mortgages referred to in subsection(b)(2) above which:

 

A)        Permit the accumulation of negative amortization of principal to an amount exceeding 120% of the initial fair market value, or

 

B)        Provide for the borrower to make payment in an amount less than would be required for the full amortization of the mortgage at an interest rate of 10%, or

 

C)        Were established under agreements which authorize the lender to bind coverage on the insurer's behalf without prior underwriting by the insurer.

 

4)         Shall not, at any one time following two years from receipt of its initial Certificate of Authority from its state of domicile, have more than 10% of its insurance in force, net of reinsurance ceded but including reinsurance assumed, on loans originating from any one lender.

 

5)         Which writes residential mortgage guaranty insurance shall not, either directly or indirectly, have at any time more than 20% of its insurance in force on commercial properties.

 

6)         Shall not assume reinsurance in an amount exceeding 20% of the company's total insurance in force.

 

7)         Shall maintain a policyholders reserve in an amount no less than the amount arrived at by the calculations set forth in this subsection (b)(7) and if its policyholders reserve is less than that amount it shall discontinue all writing of business until its policyholders reserve equals or exceeds the minimum amount required in this subsection (b)(7).  The required policyholders reserve shall be calculated in the following manner:

 

A)        subject to the provisions of subsections (b)(7)(B), (C), (D), (E), (F), and (G) of this Section, if the indebtedness is:

 

i)          75% or greater of the value of the securing property:

 

Per Cent Coverage	Policyholders Reserve Per $100 of the Face Amount of The Mortgage
5%	$  .20
10	.40
15	.60
20	.80
25	1.00
30	1.10
35	1.20
40	1.30
45	1.35
50	1.40
55	1.50
60	1.55
65	1.60
70	1.65
75	1.75
80	1.80
85	1.85
90	1.90
95	1.95
100	2.00

 

ii)         50% or greater but less than 75% of the value of the securing property, the required amount of the policyholders reserve shall be 50% of the amount required by subsection (b)(7)(A)(i) above; and

 

iii)        less than 50% of the value of the securing property, the required amount of the policyholders reserve shall be 25% of the amount required by subsection (b)(7)(A)(i) above.

 

B)        In the case of mortgage pool insurance:

 

i)                       If the total aggregate indebtedness of the group of loans covered is 75% or greater of the total aggregate value of the securing properties after giving appropriate credit for any primary mortgage guaranty insurance thereon and/or deductibles:

 

 

Per Cent Coverage	Policyholders Reserve Per $100 of the Face Amount of The Mortgage
1%	$  .60
5	1.00
10	1.20
15	1.30
20	1.40
25	1.50
30	1.55
40	1.60
50	1.65
60	1.70
70	1.75
75	1.80
80	1.85
90	1.90
100	2.00

 

ii)         If the total aggregate indebtedness of the group of loans covered is 50% or greater but less than 75% of the total aggregate value of the securing properties after giving appropriate credit for any primary mortgage guaranty insurance thereon and/or deductibles, the required amount of policyholders reserve shall be 50% of the amount required by subsection (b)(7)(B)(i) above; and

 

iii)        If the total aggregate indebtedness of the group of loans covered is 50% of the total aggregate value of the securing properties after giving appropriate credit for any primary mortgage guaranty insurance and/or deductibles, the required amount of policyholders reserve shall be 25% of the amount required by subsection (b)(7)(B)(i) above.

 

C)        In the case of:

 

i)          mortgage guaranty insurance covering loans secured by liens other than first liens, the policyholders reserve shall be calculated in accordance with subsection (b)(7)(A) above after first dividing the insured portion of the junior loan by the entire loan indebtedness on the securing property to determine the percentage coverage and then dividing the total of all loans on the securing property to determine the percentage of loan-to-value ratio; and

 

ii)         mortgage pool insurance on a group of loans secured by liens other than first liens, the policyholders reserve shall be calculated in accordance with subsection (b)(7)(B) above after the percentage of coverage and loan-to-value ratios have been determined.

 

D)        In the case of mortgage guaranty insurance covering all of the risk in excess of a fixed percentage of the initial fair market value of the real estate, the required amount of policyholders reserve shall be 125% of the amount required under subsection (b)(7)(A)(i).

 

E)        In the case of mortgage guaranty insurance covering loan installments referenced in subsection(b)(2) above, the required amount of policyholders reserves shall be 150% of the amount required under subsection (b)(7)(A).  In the case of such mortgage also meeting conditions under subsection (b)(7)(D) above, the required reserve shall be 175% of the amount required under subsection (b)(7)(A)(i).

 

F)         In the case of mortgage guaranty insurance which specifically covers leasehold obligations, the policyholders reserve shall be $4.00 for each $100 of leasehold rentals insured.

 

G)        If a policy of mortgage guaranty insurance or of mortgage pool insurance provides for layers of coverage, deductibles or reinsurance, the required amount of policyholders reserves shall be computed by subtraction of the required policyholders reserve for the lower percentage coverage limit from the required policyholders reserve for the upper or greater coverage limit.

 

H)        All calculations done under subsection (b)(7) shall be done in a uniform and consistent fashion to assure that the policyholders reserve so established and maintained bears a reasonable relationship to the risk undertaken by the company.

 

8)         Shall, in connection with the writing of mortgage guaranty insurance, individually underwrite all loans insured.

 

9)         Which anywhere transacts, directly or indirectly, any class of insurance other than mortgage guaranty insurance and/or mortgage pool insurance shall not be permitted to transact any insurance business in the State of Illinois.

 

10)         Shall not declare any dividends except from undivided profits remaining on hand over and above the amount of its policyholders reserve.

 

11)         Shall adopt, print and make available a schedule of premium charges for mortgage guaranty insurance policies which schedule shall show the entire amount of premium charge for each type of mortgage guaranty insurance policy issued by the company.

 

12)         Shall not pay to any person who is acting as agent, representative, attorney or employee of the owner, mortgage of the prospective owner, or mortgagee of real property or any interest therein, either directly or indirectly, 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 policy.

 

13)         Rebates

            No mortgage guaranty company shall make any rebate of any portion of the premium charge shown by the schedule required by subsection (b)(11).  No mortgage guaranty company shall quote any premium charge to any person which is less than that currently available to others for the same type of mortgage guaranty insurance policy.  The amount by which any premium charge is less than that called for by the current schedule of premium charge is an unlawful rebate.

 

c)         Whenever a mortgage guaranty company provides coverage exceeding 30% of the mortgage indebtedness at the time foreclosure proceedings are completed and title to the authorized real estate security is vested in such assured, unless the coverage provides that the lender be a not less than 5% co-insurer of losses, no mortgage guaranty insurer shall permit an insured to bind coverage on its behalf and shall not assume contracts of insurance without first individually underwriting each mortgage loan insured.

 

d)         A mortgage guaranty insurance company:

 

1)         Must not have a total liability, net of reinsurance, of mortgage pool insurance on mortgages from any one originating lender which exceeds 10% of the mortgage guaranty insurance company's surplus, including contingency reserve.

 

2)         Shall not permit substitutions in a pool of mortgages and shall not permit additions to a pool of mortgages after 3 years following the issuance of a policy providing mortgage pool insurance.

 

e)         An insurance company with multiple line authority that transacts insurance business other than mortgage insurance and/or mortgage pool insurance is prohibited, either directly or indirectly, from transacting mortgage insurance and/or mortgage pool insurance in the State of Illinois.

 

(Source:  Amended at 24 Ill. Reg. 14738, effective September 25, 2000)

 

Section 202.40  Reinsurance

 

a)         A mortgage guaranty insurance company may, by contract, reinsure any of its insurance with another mortgage guaranty company licensed to transact business in the State of Illinois.

 

b)         The reserves of the ceding company and the reinsurance shall be adjusted to reflect the amount of risk retained by the ceding company and the amount of risk assumed by the reinsurer but in no event shall the reserves as adjusted total less than the reserves that would be required if such ceding had not taken place.

 

Section 202.50  Reserves

 

A mortgage guaranty insurance company shall establish and maintain the following four reserve accounts:

 

a)         Reserve for General Expenses – A reserve in an amount sufficient to meet general expenses, including amounts due vendors for goods, supplies, equipment and amounts due for compensation, taxes and licenses:

 

b)         Loss Reserve – A loss reserve computed upon the case basis in a manner to accurately reflect loss frequency and loss severity which shall take into consideration, among other things, claims incurred but not yet reported, including estimated losses on;

 

1)         Insured loans which have resulted in the conveyance to the company of property which remains unsold;

 

2)         Insured loans in the process of foreclosure; and

 

3)         Insured loans and insured lease obligations in default for four months or longer for any lesser period of time which is defined as a default in the company's policy;

 

c)         Unearned Premium Reserve – A reserve for unearned premiums computed and maintained on an annual or monthly pro rata basis on all unexpired coverage, except that in the case of premiums paid in advance for coverage issued for the terms of years shown in Illustration 1, the unearned premium factors specified shall be utilized in calculating the reserved amount provided, however, that on premiums paid in advance for coverage periods in excess of 15 years, the unearned portion of the premium during the first 15 years of coverage shall be the premium collected minus an amount equal to the premium that would have been earned had the applicable premium for 15 years' coverage been received and the premium remaining after 15 years shall be released from the unearned premiums reserve pro rata over the remaining term of coverage.

 

d)         Contingency Reserve – A reserve for contingencies to protect against the effect of adverse economic cycles affecting the housing industry and to permit compliance with Section 832(e) of the Internal Revenue Code of 1954, as amended (26 U.S.C. 832e).  To which shall be contributed annually the greater

 

1)         Fifty percent (50%) of the earned premium reported for the year in the fire and casualty annual statement; or

 

2)         The sum of

 

A)        One seventh of the policyholders reserve attributable to residential properties designed for occupancy by not more than four families; plus

 

B)        One fourth of the policyholders reserve attributable to residential properties designed for occupancy by five or more families; plus

 

C)        One third of the policyholders reserve attributable to properties occupied for industrial or commercial purposes; plus

 

D)        One tenth of the policyholders reserve attributable to leases;

 

i)          The contingency reserve shall be maintained for a period of 120 months after which it shall be released and become a part of the general and unrestricted assets of the company.

 

ii)         Upon notice to the Director, the contingency reserve shall be available to the company to the extent necessary to make loss payments either; when the incurred losses in a year exceed 35% of the earned premiums in that year or; when incurred losses in a year exceed 70% of the amount contributed to the contingency reserve, whichever is greater.  Funds used in this manner shall be accounted for on a first-in first-out basis.

 

Section 202.60  General

 

a)         Forms – All policy forms for mortgage guaranty insurance must be filed with and approved by the Director pursuant to Section 143 of the Illinois Insurance Code prior to their utilization in the State of Illinois.

 

b)         Prohibition Against Deficiency Judgment – With respect to owner-occupied single family homes, a borrower shall not be liable to any mortgage guaranty insurance company for any deficiency arising upon a foreclosure sale except for foreclosures arising from fraud or misrepresentation by the borrower;

 

c)         Agents, Brokers and Solicitors – Any person proposing engage in the sale of mortgage guaranty insurance or mortgage pool insurance shall first obtain the requisite fire and casualty license pursuant to the provisions of Article XXXI of the Illinois Insurance Code.

 

d)         Prohibition on Real Estate Investments – A mortgage guaranty insurance company may not invest in notes or other evidences of indebtedness secured by a lien on real property except if same are acquired in the course of the good faith settlement of claims or in the good faith disposition of real property pursuant to said settlement.

 

e)         Conflict of Interest – No mortgage guaranty insurance company shall insure any loans originated by a lender if such lender or any service corporation affiliate, or any other affiliate or controlling person thereof, owns any equity interest of any type of such mortgage guaranty insurance company.

 

f)         Advertising – No bank, savings and loan association or insurance company, any of whose real estate securities are insured pursuant to this Part 202 may advertise that its real estate loans are insured or are "insurance loans" only if clearly stating that they are insured by private mortgage insurance giving the names of the mortgage guaranty insurance companies writing such insurance.

 

g)         Applicability of Other Regulations – All of the applicable provisions of the Illinois Insurance Department's Rules and Regulations shall govern the conduct and operation of a mortgage guaranty insurance company except to the extent inconsistent with or in conflict with this Part 202.

 

h)         Applicability of Part – Unless this Part specifically provides to the contrary, no mortgage guaranty insurance company licensed to transact business in this State may continue to hold its Certificate of Authority if it anywhere transacts mortgage guaranty insurance in a manner not in conformity with this Part unless it does so pursue to a statute or regulation more stringent than similar provisions contained herein.  Section 202.30(b)(12) and (13) apply only to business written in Illinois and are exempted from this provision.  The Certificate of Authority of a mortgage guaranty insurer shall not be suspended or revoked unless such insurer fails within 30 days after notice from the Director to correct any noncompliance with the provisions of this Part 202.

 

Section 202.ILLUSTRATION A   Unearned Premium Factor to be Applied to Premiums In Force on Valuation Date

 

Contract Year Current at Valuation Date	2 Year Coverage Period	3 Year Coverage Period	4 Year Coverage Period	5 Year Coverage Period	6 Year Coverage Period
1	88.8%	93.9%	95.7%	96.5%	97.0%
2	38.7%	66.7%	76.4%	81.0%	83.7%
3		22.9%	45.3%	56.0%	62.2%
4			14.5%	31.3%	41.1%
5				9.8%	22.7%
6					7.1%
7
8
9
10
11
12
13
14
15

 

Contract Year Current at Valuation Date	7 Year Coverage Period	8 Year Coverage Period		9 Year Coverage Period	10 Year Coverage Period	11 Year Coverage Period
1	97.3%		97.5%	97.7%	97.7%	97.8%
2	85.4%		86.5%	87.3%	87.6%	87.9%
3	66.2%		68.8%	70.4%	71.3%	71.9%
4	47.4%		51.3%	53.8%	55.3%	56.1%
5	31.0%		36.2%	39.4%	41.3%	42.5%
6	17.1%		23.3%	27.2%	29.5%	30.9%
7	5.4%		12.5%	16.9%	19.6%	21.2%
8			3.8%	8.6%	11.6%	13.3%
9				2.5%	5.6%	7.5%
10					1.6%	3.4%
11						0.9%
12
13
14
15

 

 

Contract Year Current at Valuation Date	12 Year Coverage Period	13 Year Coverage Period	14 Year Coverage Period	15 Year Coverage Period
1	97.8%	97.8%	97.8%	97.8%
2	88.1%	88.1%	88.2%	88.2%
3	72.3%	72.5%	72.6%	72.6%
4	56.7%	57.1%	57.2%	57.3%
5	43.2%	43.7%	43.9%	44.0%
6	31.8%	32.3%	32.7%	32.8%
7	22.1%	22.8%	23.2%	23.3%
8	14.4%	15.1%	15.5%	15.7%
9	8.6%	9.3%	9.9%	10.1%
10	4.6%	5.4%	6.0%	6.2%
11	2.1%	2.9%	3.5%	3.7%
12	0.6%	1.3%	1.9%	2.1%
13		0.4%	0.9%	0.5%
14			0.3%	0.1%
15