General Electric Mortgage Insurance Corp. is moving to exit the business of providing credit enhancements for mortgage backed securities.

It is a line of business in which GE has been rapidly losing market share - and one that is widely believed to have lost money for the giant corporation.

In a recent facsimile to its clients, Martin H. Heck, the chairman of GE Mortgage Insurance Corp., communicated that after Nov. 30 the company would no longer issue any commitments for "pool insurance."

Pool insurance is a form of credit enhancement used for jumbo mortgages that form mortgage-backed securities.

Pool insurance has been eclipsed in the last 18 months by an alternative form of credit enhancement called "senior subordination", under which a subordinate tranche of the MBS is created to take losses, experts say.

Investors have proved willing to pay prices for these 'B' pieces that make them a less expensive means of making the 'A' portions of securities AAA-rated.

Since the second quarter of 1993, pool insurance in force has declined by 45%, to $45.7 billion, according to the Mortage Insurance Companies of America, a trade group.

As a result, the vast majority of the jumbo loans included in mortgage-backed securities now decline pool insurance.

"Our customers voted in the clearest possible way," said a GE spokesman. In recent months, according to GE, less than 5% of the loans approved for pool insurance have actually ended up insured.

In the future, GE will market an underwriting review service that will offer a 'seal of approval' for loans but no actual insurance. In making these moves, GE is following exactly the path ,taken by PMI Mortgage Insurance last year.

At that time, unable to match the pricing of subordination, and suffering from poor performance in its book of business, PMI pulled the plug on its pool insurance line and substituted an underwriting service.

Though GE declined to discuss the performance of its pool insurance portfolio, market observers believe the company lost money on the line. Losses were one of the reasons for exiting pool insurance that GE cited in discussions with its clients, according to sources.

"The losses have been quite high," said Bill Boak an analyst at Moody's Investors Service. "PMI got out of the market because of losses and I suspect that was a factor with GE."

Because pool insurance deals only with loans above $203,150, there is an inherent concentration in southern Calif-- an area where falling home prices at the high end of the market have caused high losses in mortgage-backed securities, Mr. Boak explained.

As well, with the senior subordinated structure a less-expensive option, there was a general perception that GE was getting the diciest loans.

"When you only get 2% of the market you have to be concerned about adverse selection," said a company spokesman.

With GE out of pool insurance, United Guaranty Corporation becomes the last mortgage insurer to offer the product.

In a recent interview, United Guaranty' s chairman, Charles M. Reid, affirmed his company's commitment to the business.

However, it is unlikely that United Guaranty will be able to, or interested in, picking up all of the available new business.

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