OTS Would Consider Thrift Requests to Set Up Reinsurance Units

Register now

The Office of Thrift Supervision has received a letter from Amerin Guaranty Corp., a mortgage insurer, asking it to pre-approve captive mortgage reinsurance as a business for thrifts.

An agency official said, however, that it was likely to wait for individual thrifts to apply before announcing whether it would approve the practice.

"The inclination is to look at this on a case-by-case basis," the official said.

Last month, the Office of the Comptroller of the Currency responded to a similar request by United Guaranty Corp., another mortgage insurer in Greensboro, N.C. The chief counsel for the OCC said in its response that national commercial banks can start up captive mortgage reinsurance subsidiaries.

Many thrifts and banks are exploring setting up captive reinsurance subsidiaries, because mortgage insurers are enjoying much healthier profit margins than lenders. Mortgage insurers provide insurance on loans with low down payments that Fannie Mae, properly the Federal National Mortgage Association, and Freddie Mac, the Federal Home Loan Mortgage Corp., will not purchase unless they are insured.

By setting up a captive mortgage reinsurance subsidiary, a lender will partner with a mortgage insurer and will assume some of the risk on loansit originates and get a portion of the premiums.

The two largest independent mortgage bankers, Countrywide Credit Industries Inc. and North American Mortgage Co., have already set up captive mortgage reinsurance subsidiaries. These nonbank-owned mortgage lenders are not regulated by the OCC or the OTS.

One thrift executive said that all major thrifts have to be looking at captive mortgage reinsurance to cash in on some of the profits generated by the mortgage insurance industry.

But another executive, Joseph Krul, chief financial officer of Standard Federal Bank, said his company had not decided yet whether it would apply to the thrift regulator. He added, however, that several insurers had been in touch with the company about setting up a captive reinsurance subsidiary.

As of midyear, Standard Federal, a subsidiary of Troy, Mich.-based Standard Federal Bancorp, was the largest thrift-owned mortgage originator and the 11th-largest mortgage originator overall.

Although some banks, including customers of Chicago-based Amerin, also wrote to the OCC about captive mortgage reinsurance, that agency chose to respond to United Guaranty first, a move that Amerin chief executive Gerald L. Friedman called surprising.

Mr. Friedman said the Office of Thrift Supervision, unlike the OCC, requested public comments about whether underwriting mortgage reinsurance should be a pre-approved activity for thrifts. He added that this was the reason Amerin chose to write to the thrift regulator and let its bank customers contact the OCC.

Mark Amacher, United Guaranty's vice president of strategic planning and marketing, said that his company has asked the OCC to forward a copy of the letter it receivedto the Office of Thrift Supervision.

He added that he expects the thrift regulator to approve applications by thrifts for captive reinsurance subsidiaries now that the OCC has given its seal of approval to banks. According to Mr. Amacher, some of United Guaranty's thrift customers have told it they think the OTS will make a decision regarding captive reinsurance by yearend.

But the agency said it has received no applications.

For reprint and licensing requests for this article, click here.