The comptroller of the currency has approved an application by Chase Manhattan Bank to set up a captive mortgage reinsurance subsidiary, opening the door for banks to share in the premiums of the highly profitable mortgage insurance industry.
Chase is the first bank to receive such approval. The OCC said in an interpretive letter in October that banks could engage in mortgage reinsurance.
Julie L. Williams, chief counsel for the OCC, said other banks have made inquiries about mortgage reinsurance subsidiaries but the OCC has not received any formal applications.
The subsidiary, Cross Country Insurance Co., will begin operations immediately, according to Dennis Kosovac, chairman and president.
Mr. Kosovac, who is also president and chief executive of Chase Insurance Agency, said Cross Country would reinsure parts of mortgages originated or purchased by Chase Manhattan Mortgage Corp. The mortgages will originally be insured by Amerin Guaranty Corp., a mortgage insurer.
The structure allows for Chase to receive a portion of the premiums paid to Amerin in exchange for assuming some of the risk of default. Amerin officials would not comment since the company is in the process of making a secondary stock offering.
Thomas Jacob, Chase Manhattan Mortgage's chairman and chief executive officer, said the mortgage reinsurance subsidiary would enable more low- and middle-income customers to purchase homes.
Mortgage insurance allows borrowers to make lower down payments. The Federal National Mortgage Association and Federal Home Loan Mortgage Corp. will not invest in a mortgage with less than 20% down unless the loan is insured.
Mark Amacher, vice president for strategic planning and marketing at United Guaranty Corp., another mortgage insurer, said the comptroller's decision was "great news" for the industry. The OCC's October letter was a response to a query by United Guaranty about whether mortgage reinsurance was a permissible activity under the National Bank Act.
Mr. Kosovac said Cross Country would function as a monoline insurer, so Chase was free to partner with other mortgage insurance companies if it chooses.