SECTIONS 12640.07-12640.11 - California Statutes

INSURANCE CODE

SECTION 12640.07-12640.11

12640.07. (a) Mortgage guaranty insurance may be transacted in this
state only by a stock or mutual casualty insurer holding a
certificate of authority for the transaction of the insurance
pursuant to this chapter, and shall be written only to insure either
of the following:
(1) Loans secured by first liens on authorized real estate
securities not exceeding, at the time the loan is made, 103 percent
of the fair market value of the authorized real estate security, as
defined in subparagraph (A) of paragraph (1) of subdivision (b) of
Section 12640.02.
(2) Loans secured by junior liens, as defined in subparagraph (B)
of paragraph (1) of subdivision (b) of Section 12640.02.
(b) Any reciprocal insurer engaging in this type of business shall
be bound by all provisions of this chapter, including the
requirements as to paid-in capital and paid-in surplus.

12640.08. A mortgage guaranty insurer shall not insure loans
secured by properties in a single housing tract or a contiguous tract
in excess of ten (10) percent of the insurer's policyholders
surplus. In determining the amount of such risk, applicable
reinsurance in any assuming insurer authorized to transact mortgage
guaranty insurance in this State shall be deducted from the total
direct risk insured. "Contiguous," for the purposes of this section,
means not separated by more than one-half mile.

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 paragraphs (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 Section 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.

12640.091. (a) In order to qualify as a segregated trust under
subdivision (d) of Section 12640.09, a trust shall meet all of the
following requirements:
(1) Be established by an insurer or reinsurer for the benefit of
the ceding mortgage guaranty insurer.
(2) Have the trust assets located in the mortgage guaranty insurer'
s state of domicile, in the State of California, or in another
jurisdiction which is approved by the commissioner.
(3) Be funded by assets permitted by Article 3 (commencing with
Section 1170) of Chapter 2 of Part 2 of Division 1, or by tax and
loss bonds purchased pursuant to Section 832(e) of the Internal
Revenue Code.
(4) Be subject to withdrawals only by, and under the control of,
the ceding mortgage guaranty insurer provided that written
notification with adequate supporting documentation is filed with the
commissioner within 15 calendar days after the withdrawal.
(5) Consent to and be subject to examination by the commissioner.
(6) Appoint an agent for service of process in the State of
California and file the appointment with the commissioner within 30
calendar days after the effective date.
(b) The trust agreement and any amendments to it shall be filed
with the commissioner within 30 calendar days after its effective
date. The commissioner may order a prospectively applicable
modification, correction, disapproval, or termination of any trust
arrangement, agreement, or amendment which fails to meet the
requirements set forth in this chapter. Any order of the commissioner
shall be in writing and shall specify the reasons for the
modifications, corrections, disapproval, or termination.
(c) The ceding mortgage guaranty insurer shall make quarterly,
annual, and interim reports on the segregated trust account at the
time as they are required or requested by the commissioner on forms
prescribed by the commissioner.
(d) The commissioner may adopt rules and regulations necessary to
carry out the provisions of this section including appropriate rules
or regulations to assure that the trust assets are legally
segregated, reasonably liquid, secure, and accessible.

12640.095. A mortgage guaranty insurer transacting the class of
insurance defined in paragraph (2) of subdivision (a) of Section
12640.02 may reinsure with either the type of reinsurer defined in
subdivision (d) of Section 12640.09, or, any other insurer which has
received written permission from the commissioner to write the type
of insurance defined in paragraph (2) of subdivision (a) of Section
12640.02.

12640.10. (a) An insurer which anywhere transacts any class of
insurance other than mortgage guaranty insurance defined in
paragraphs (1), (3) and (4) of subdivision (a) of Section 12640.02 is
not eligible for the issuance of a certificate of authority to
transact such classes of mortgage guaranty insurance in this state
nor for the renewal thereof. An insurer with a certificate of
authority to transact the business of credit insurance in this state
may also transact the business of mortgage guaranty insurance as
defined in paragraph (2) of subdivision (a) of Section 12640.02,
provided the insurer has received the written permission of the
commissioner.
(b) An insurer which anywhere transacts the classes of insurance
defined in paragraphs (2), (3) and (4) of subdivision (a) of Section
12640.02 is not eligible for the issuance of a certificate of
authority to transact in this state the class of mortgage guaranty
insurance defined in paragraph (1) of subdivision (a) of Section
12640.02.
(c) An insurer authorized to transact the class of insurance
defined in paragraph (2) of subdivision (a) of Section 12640.02 shall
maintain segregated accounts with respect to such insurance in the
following manner if it anywhere transacts any other class of
insurance:
(1) The minimum paid in capital and surplus required by Section
12640.03 and the reserves required to be established pursuant to
Sections 12640.04 and 12640.16 shall be contributed to and maintained
in the account.
(2) The income and assets attributable to the segregated account
shall continuously remain identifiable with the particular account,
but, unless the commissioner so orders, the assets need not be kept
physically separate from other assets of the insurer. The income,
gains and losses, whether or not realized, from assets attributable
to the segregated account shall be credited to or charged against the
account without regard to other income, gains or losses of the
insurer.
(3) Assets attributable to the segregated account shall not be
chargeable with any liabilities arising out of any other business of
the insurer, and any assets not attributable to the account shall not
be chargeable with any liabilities arising out of it.
(4) The segregated account shall be deemed an insurer for purposes
of any proceedings in cases of insolvency and delinquency
instituted, pursuant to applicable provisions of this code; provided,
however, that such account shall not be subject to the provisions of
Article 14.2 (commencing with Section 1063) of Chapter 1 of Part 2
of Division 1.
(5) Assets allocated to the segregated account are the property of
the insurer which shall not hold itself out to be a trustee of the
assets.
(6) An insurer may own a particular asset in determinate
proportions for such segregated account or for its general account.
(7) An insurer may, by an identifiable act, transfer assets for
fair consideration between such segregated account and its general
account.
(d) The written permission described in subdivision (a) shall be
obtained by filing an application with the commissioner on a form
prescribed by the commissioner accompanied by any additional
information concerning the insurer, its conditions, and affairs, as
the commissioner may require. A fee of one thousand five hundred
dollars ($1,500) shall be paid in advance to the department for the
filing of the application.

12640.11. (a) Nothing in this chapter (commencing with Section
12640.01) shall be construed as limiting the right of any mortgage
guaranty insurer 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) All statements and descriptions in any application for
mortgage guaranty insurance or in negotiations for that insurance,
and all documents relating thereto, submitted to the mortgage
guaranty insurer shall be deemed to be representations and not
warranties. Furthermore, misrepresentations and incorrect or
incomplete statements in any such application, negotiations, and all
documents relating thereto shall not prevent a recovery under a
policy of mortgage guaranty insurance unless:
(1) Fraudulent; or
(2) Material either to the acceptance of the risk or to the hazard
assumed by the insurer; or
(3) The insurer in good faith would either not have issued the
mortgage guaranty insurance policy or extended coverage thereunder,
or would not have issued the policy or extended coverage in as large
an amount or at the premium rate as applied for or would not have
provided coverage with respect to the hazard resulting in the loss if
the true facts had been known to the insurer as required by the
application for the policy or for the extension of coverage or
otherwise.