Banc One Corp. has become the first company to receive approval from federal banking regulators to set up a captive mortgage reinsurance subsidiary since the New York State Insurance Department questioned the legality of mortgage reinsurance.

Lenders have turned to captive mortgage reinsurance as a way to partake in the profits of the mortgage insurance industry. Though competition has caused substantial margin erosion for mortgage banks, mortgage insurers have enjoyed a prolonged period of profit growth.

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