Just as the Department of Housing and Urban Development issued guidelines for the business, two of the nation's largest banks forged ahead with mortgage reinsurance programs.

First Union Corp. announced that it has already established a mortgage reinsurance subsidiary, and Norwest Corp., parent of the nation's largest mortgage lender, said it has recently received approval from the Office of the Comptroller of the Currency to set one up.

Norwest joins Chase Manhattan Corp., PNC Bank Corp., and Banc One Corp. as banks that have been given permission by the OCC to establish mortgage reinsurance subsidiaries.

The mortgage insurance industry has enjoyed healthy profitability in the last few years while lenders' profit margins have thinned due to increased competition.

Offering mortgage reinsurance allows lenders to partake of portions of the profits of the mortgage insurance industry. Reinsurers receive insurance premiums commensurate with the amount of risk they assume.

Earlier this week, Amerin Corp., a mortgage insurer, announced that it had received a letter from HUD which explained how mortgage reinsurance subsidiaries should be set up under the Real Estate Settlement Procedures Act.

In his response to Amerin's request for guidance, Nicolas P. Retsinas, the assistant secretary for housing and a federal housing commissioner, wrote that lenders who provide the reinsurance must use a legally binding contract showing terms and conditions; that they must post capital and reserves satisfying the laws of the state in which they are chartered; and that they must document that the reinsurance constitutes true transfer of risk.

Insurers said the guidelines further validate the mortgage reinsurance structure.

"Anytime you clarify what's acceptable and what you're looking for as a regulator, it's an improvement over not knowing," said Mark Amacher, vice president for strategic planning and marketing for United Guaranty.

Daniel Glassberg, a senior vice president and assistant general counsel for First Union, said it did not need to seek OCC approval because its subsidiary is an Edge Act corporation.

The Edge Act allows American banks to have subsidiaries headquartered outside of the United States. The First Union subsidiary is headquartered in Bermuda, Mr. Glassberg said. The Federal Reserve System, which monitors Edge Act corporations, approved First Union's application for a reinsurance subsidiary earlier this year.

United Guaranty is just one of the insurers working with First Union, Mr. Glassberg said.

Norwest officials did not return calls seeking comment about the reinsurance subsidiary. But Gerald Friedman, chief executive officer of Amerin, said the company was working with Norwest to establish the subsidiary.

The mortgage reinsurance concept has met with some resistance in New York. The New York State Insurance Department is conducting its own review of several reinsurance arrangements in order to ensure that lenders are not receiving kickbacks from mortgage insurers.

But now that HUD has published strict standards for reinsurance, Mr. Friedman said he's confident that New York will not have any objections to mortgage reinsurance.

"I firmly believe as I did in the case of HUD that New York will arrive at a positive conclusion about mortgage reinsurance," Mr. Friedman said.

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