CHAPTER 3502. MORTGAGE GUARANTY INSURANCE
INSURANCE CODE
TITLE 12. OTHER COVERAGE
CHAPTER 3502. MORTGAGE GUARANTY INSURANCE
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 3502.001. APPLICABILITY OF CHAPTER. This chapter applies
only to mortgage guaranty insurance and does not affect any other
provision of this code.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 3, eff. April 1, 2007.
Sec. 3502.002. APPLICABILITY OF OTHER LAW. (a) This code and
other state laws apply to the business of mortgage guaranty
insurance.
(b) This chapter controls to the extent of any conflict with
another provision of this code or other state law.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 3, eff. April 1, 2007.
Sec. 3502.003. MORTGAGE GUARANTY INSURANCE DEFINED. In this
chapter, "mortgage guaranty insurance" means insurance against:
(1) financial loss because of nonpayment of principal, interest,
and other amounts agreed to be paid under the terms of a note,
bond, or other evidence of indebtedness that is secured by an
authorized real estate security, provided the improvement on the
real estate is:
(A) one or more residential buildings designed to be occupied by
not more than four families;
(B) a condominium unit; or
(C) one or more buildings designed to be occupied by five or
more families or for industrial or commercial purposes; or
(2) financial loss because of nonpayment of rent and other
amounts agreed to be paid under the terms of a written lease for
the possession, use, or occupancy of real estate, provided the
improvement on the real estate is one or more buildings designed
to be occupied for industrial or commercial purposes.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 3, eff. April 1, 2007.
Sec. 3502.004. AUTHORIZED REAL ESTATE SECURITY DEFINED. (a) In
this chapter, "authorized real estate security" means:
(1) a proprietary lease and a stock membership certificate
issued to a tenant stockholder or resident member of a fee simple
cooperative housing corporation as defined in Section 216,
Internal Revenue Code of 1986; or
(2) a mortgage, deed of trust, wraparound mortgage, or other
instrument that constitutes a first lien or charge on real estate
or is considered to be the equivalent of a first lien or charge
on real estate by the Federal National Mortgage Association, the
Federal Home Loan Mortgage Corporation, the Federal Housing
Finance Board, a successor of one of those entities, an agency of
this state, or a federal agency, provided:
(A) the improvement on the real estate is a building or
buildings designed to be occupied as specified by Section
3502.003(1); and
(B) the real estate loan is a type of loan that is:
(i) authorized to be made by a bank, savings and loan
association, credit union, or insurer that is supervised and
regulated by a department of this state or a federal agency;
(ii) authorized to be made by a mortgage banker that is an
approved seller-servicer of the Federal National Mortgage
Association, the Federal Home Loan Mortgage Corporation, or a
successor of one of those entities; or
(iii) approved by the federal secretary of housing and urban
development for participation in a mortgage insurance program.
(b) The lien on real estate described by Subsection (a)(2) may
be subject and subordinate to:
(1) the lien of a public bond, assessment, or tax if there is
not a delinquent installment, call, or payment of or under the
bond, assessment, or tax;
(2) an outstanding mineral, oil, or timber right, right-of-way,
easement or right-of-way support, sewer right, building
restriction, other restriction or covenant, or other condition or
regulation of use; or
(3) an outstanding lease on the real estate under which rents or
profits are reserved to the owner.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 3, eff. April 1, 2007.
SUBCHAPTER B. MORTGAGE GUARANTY INSURERS
Sec. 3502.051. GENERAL ELIGIBILITY TO WRITE MORTGAGE GUARANTY
INSURANCE. (a) An insurer that writes anywhere any class of
insurance other than mortgage guaranty insurance may not be
issued or continue to hold a certificate of authority to write
mortgage guaranty insurance in this state.
(b) A mortgage guaranty insurer that writes anywhere the class
of mortgage guaranty insurance described by Section
3502.003(1)(C) or (2) may not be issued or continue to hold a
certificate of authority to write in this state the class of
mortgage guaranty insurance described by Section 3502.003(1)(A)
or (B).
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 3, eff. April 1, 2007.
Sec. 3502.052. ELIGIBILITY OF FOREIGN OR ALIEN INSURER TO WRITE
MORTGAGE GUARANTY INSURANCE. The department may not issue a
certificate of authority to a foreign or alien insurer writing
mortgage guaranty insurance unless the insurer demonstrates a
satisfactory operating experience in the insurer's state of
domicile.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 3, eff. April 1, 2007.
Sec. 3502.053. DISCRIMINATION PROHIBITED. In extending or
issuing mortgage guaranty insurance, a mortgage guaranty insurer
may not discriminate on the basis of the applicant's sex, marital
status, race, color, creed, national origin, disability, or age
or solely on the basis of the geographic location of the property
to be insured unless:
(1) the discrimination related to geographic location is for a
business purpose that is not a mere pretext for unfair
discrimination; or
(2) the refusal, cancellation, or limitation of the insurance is
required by law or regulatory mandate.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 3, eff. April 1, 2007.
SUBCHAPTER C. FORMS AND RATES
Sec. 3502.101. RATE FILINGS. (a) Not later than the 15th day
before the date a mortgage guaranty insurer uses a rate or
supplementary rate information in this state, the insurer must
file the rate and supplementary rate information, and any changes
to the rate or supplementary rate information, with the
department.
(b) The rate filing must include adequate supporting data,
including:
(1) information on:
(A) past and prospective loss experience in this state and
outside the state;
(B) catastrophe hazards;
(C) expenses of operation; and
(D) a reasonable margin for profit and contingencies;
(2) an explanation of the insurer's interpretation of any
statistical data on which the insurer relied;
(3) an explanation and description of the methods used in making
the rates; and
(4) certification by an appropriate official of the insurer
relating to the appropriateness of the charges, rates, or rating
plans based on reasonable assumptions and accompanied by adequate
supporting information.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 3, eff. April 1, 2007.
Sec. 3502.102. RATE STANDARDS. (a) A mortgage guaranty
insurance rate, rating plan, or charge may not be excessive,
inadequate, or unfairly discriminatory and must be reasonable
with respect to the benefits provided.
(b) This chapter does not require the department to:
(1) establish standard and absolute rates or a single and
uniform rate for each risk or risks; or
(2) compel all insurers to adhere to rates previously filed by
other insurers.
(c) The department may accept different rates for different
insurers for the same risk or risks on mortgage guaranty
insurance. The department may accept different rates for
different insurers as filed by any authorized insurer unless the
department finds that the filing does not meet the requirements
of this chapter.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 3, eff. April 1, 2007.
Sec. 3502.103. RECORDING AND REPORTING OF LOSS AND EXPENSE
EXPERIENCE AND OTHER DATA. (a) The commissioner shall adopt
reasonable rules and statistical plans for the recording and
reporting of loss experience and other required data by a
mortgage guaranty insurer. The rules and plans must ensure that
each insurer's total loss and expense experience is made
available in the form and with the detail the commissioner
considers necessary.
(b) Each mortgage guaranty insurer shall use the statistical
plans adopted under this section to record and report loss
experience and other required data in accordance with the rules
adopted by the commissioner.
(c) The commissioner may modify statistical plans adopted under
this section.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 3, eff. April 1, 2007.
Sec. 3502.104. POLICY FORM FILINGS. (a) Except as provided by
Subsection (b), not later than the 15th day before the date a
mortgage guaranty insurer uses a policy form, related form,
classification, or rule in this state, the insurer must file the
form, classification, or rule with the department.
(b) This subsection applies only to a policy form, related form,
classification, or rule a mortgage guaranty insurer uses in this
state for a policy that provides coverage for a pool or group of
loans in connection with the issuance of mortgage-backed
securities or bonds. Not later than the 15th day after the date
the insurer uses the form, classification, or rule, the insurer
shall file the form, classification, or rule with the department.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 3, eff. April 1, 2007.
Sec. 3502.105. POLICY FORM STANDARDS. The commissioner shall
disapprove a mortgage guaranty insurance policy form if the form:
(1) violates this code or rules adopted by the commissioner; or
(2) contains a provision that encourages misrepresentation or is
unjust, unfair, inequitable, misleading, deceptive, or contrary
to law or to the public policy of this state.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 3, eff. April 1, 2007.
Sec. 3502.106. CLAIM AGAINST RESIDENTIAL BORROWER. A mortgage
guaranty insurance policy may not contain a provision that allows
subrogation rights or any other claim by the insurer against the
borrower for a deficiency arising from a foreclosure sale of a
single-family dwelling that is occupied by the borrower as the
borrower's principal residence.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 3, eff. April 1, 2007.
Sec. 3502.107. EXEMPTION; WITHDRAWAL OF APPROVAL. (a) A policy
form, related form, classification, or rule a mortgage guaranty
insurer uses in this state, including for a policy described by
Section 3502.104(b), is exempt from department approval.
(b) If the commissioner finds, after notice and hearing, that
the filing of a policy form, related form, classification, or
rule is no longer in the best interest of the public, the
commissioner may issue an order:
(1) suspending the exemption under Subsection (a) with respect
to one or more insurers that filed the form, classification, or
rule; and
(2) requiring each affected insurer to cease and desist using
the form, classification, or rule, as the commissioner specifies.
(c) If the commissioner finds, after notice and hearing, that a
filed policy form or rate no longer meets the requirements of
this code, the commissioner may issue an order withdrawing
approval of the form or rate. The order must specify the reasons
the form or rate no longer meets the requirements. An order
under this subsection may not take effect until the 30th day
after the date the commissioner issues the order.
(d) The commissioner must provide to each insurer that filed a
form, classification, rule, or rate that is the subject of a
hearing under this section notice of the hearing not later than
the 20th day before the date of the hearing. The notice must
specify the matters to be considered at the hearing.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 3, eff. April 1, 2007.
Sec. 3502.108. RULES. (a) The commissioner may, after notice
and hearing, adopt reasonable rules:
(1) relating to the minimum standards for coverage under policy
forms consistent with the purpose of this chapter and the public
policy of this state; and
(2) necessary to establish guidelines, procedures, methods,
standards, and criteria by which the types of forms and documents
submitted to the department are to be reviewed and acted on by
the department.
(b) The department may establish requirements for data and
information filed under this chapter.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 3, eff. April 1, 2007.
SUBCHAPTER D. FINANCIAL REQUIREMENTS
Sec. 3502.151. DEFINITION. In this subchapter, "contingency
reserve" means an additional premium reserve established to
protect policyholders against the effect of adverse economic
cycles or losses.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 3, eff. April 1, 2007.
Sec. 3502.152. CAPITAL AND SURPLUS REQUIREMENTS. An insurer may
not write mortgage guaranty insurance unless the insurer has the
minimum capital and surplus required by Chapter 861 for a general
casualty company.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 3, eff. April 1, 2007.
Sec. 3502.153. UNEARNED PREMIUM RESERVE. (a) Except as
provided by Subsection (b), the unearned premium reserve on
mortgage guaranty insurance must be computed in accordance with
this code.
(b) For a policy covering a risk period of more than one year,
the unearned premium reserve must be computed in accordance with
standards adopted by the commissioner after appropriate hearings.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 3, eff. April 1, 2007.
Sec. 3502.154. LOSS RESERVE. A mortgage guaranty insurer shall
determine the loss reserve using the case basis method. The loss
reserve must include a reserve for claims incurred but not
reported.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 3, eff. April 1, 2007.
Sec. 3502.155. CONTINGENCY RESERVE. (a) In addition to the
capital, surplus, and reserves required by Sections 3502.152,
3502.153, and 3502.154, a mortgage guaranty insurer shall
establish a contingency reserve and report the contingency
reserve as a liability in the insurer's financial statements.
(b) To establish and maintain the contingency reserve, the
mortgage guaranty insurer shall annually contribute to the
contingency reserve 50 percent of the earned premiums on the
insurer's mortgage guaranty insurance business. The reserved
earned premiums may be released to the insurer's surplus annually
after the premiums have been maintained for 120 months.
(c) In addition, the mortgage guaranty insurer may withdraw
premiums from the contingency reserve in any year for which the
insurer can demonstrate to the department that the incurred
losses for that year exceed 35 percent of the corresponding
earned premiums for that year. The insurer shall reduce any
subsequent annual release to surplus from the established
contingency reserve by an amount equal to the amount withdrawn
and released for the losses. The insurer shall deduct from
subsequent annual releases any balance that exceeds the normal
annual release from the contingency reserve.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 3, eff. April 1, 2007.
Sec. 3502.156. OUTSTANDING TOTAL LIABILITY. (a) A mortgage
guaranty insurer may not at any time have outstanding under the
insurer's aggregate mortgage guaranty insurance policies a total
liability, net of reinsurance, that exceeds the sum of the
insurer's capital, surplus, and contingency reserve, multiplied
by 25.
(b) A mortgage guaranty insurer shall compute the insurer's
liability for the purposes of this section on the basis of the
insurer's liability under the election as provided by Section
3502.158. An insurer shall compute the insurer's liability for
leases on the basis of the insurer's liability as determined by
the department.
(c) A mortgage guaranty insurer that has outstanding total
liability that exceeds the amount computed under Subsection (a)
may not write new mortgage guaranty insurance business until the
insurer's total liability no longer exceeds that amount.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 3, eff. April 1, 2007.
Sec. 3502.157. LIMIT ON INSURANCE OF CERTAIN LOANS. (a) In
this section, "contiguous" means not separated by more than
one-half mile.
(b) A mortgage guaranty insurer may not insure loans secured by
properties in a single housing tract or a contiguous tract in an
amount that exceeds 10 percent of the insurer's capital, surplus,
and contingency reserve.
(c) In determining the amount of risk under this section, a
mortgage guaranty insurer shall deduct from the total direct risk
insured any applicable reinsurance in an assuming insurer
authorized to engage in the business of mortgage guaranty
insurance in this state.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 3, eff. April 1, 2007.
Sec. 3502.158. LIMIT ON COVERAGE FOR CERTAIN INSUREDS. For the
classes of insurance described by Section 3502.003(1), a mortgage
guaranty insurer shall elect to:
(1) limit the insurer's coverage, net of reinsurance, to a
maximum of 25 percent of the entire indebtedness to the insured;
or
(2) pay the entire indebtedness to the insured and acquire title
to the authorized real estate security.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 3, eff. April 1, 2007.
SUBCHAPTER E. LENDER POWERS AND DUTIES
Sec. 3502.201. DEFINITION. In this subchapter, "lender" has the
meaning assigned by Section 549.001.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 3, eff. April 1, 2007.
Sec. 3502.202. NOTICE OF BORROWER'S RIGHT TO CANCEL. (a) A
lender that requires a borrower to purchase mortgage guaranty
insurance shall provide annually to the borrower a copy of the
following written notice printed in at least 10-point boldfaced
type:
"NOTICE OF RIGHT TO CANCEL PRIVATE MORTGAGE INSURANCE: If you
currently pay private mortgage insurance premiums, you may have
the right to cancel the insurance and cease paying premiums.
This would permit you to make a lower total monthly mortgage
payment and to possibly receive a refund of any unearned premiums
on the policy. In most cases, you have the right to cancel
private mortgage insurance if the principal balance of your loan
is 80 percent or less of the current fair market appraised value
of your home. If you want to learn whether you are eligible to
cancel this insurance, please contact us at (address and
telephone number of lender) or the Texas Department of Insurance
consumer help line at (the appropriate toll-free telephone
number)."
(b) If federal law requires a lender to provide a borrower with
a written notice containing substantially the same information
required by Subsection (a), a lender that provides the notice
required by federal law within the period prescribed by federal
law satisfies the notice requirement of Subsection (a).
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 3, eff. April 1, 2007.
Sec. 3502.203. REFUND OF PREMIUM. A lender that receives a
refund of an unearned mortgage guaranty insurance premium paid by
a borrower shall remit the refund to the borrower not later than
the 10th business day after the date the lender receives the
refund.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 3, eff. April 1, 2007.
Sec. 3502.204. ADVERTISING OF "INSURED LOANS." A bank, savings
and loan association, insurer, or approved seller-servicer of the
Federal National Mortgage Association, any of whose authorized
real estate securities are insured by a mortgage guaranty
insurer, may not state in a brochure, pamphlet, or report or any
form of advertising that the real estate loans of the bank,
savings and loan association, insurer, or seller-servicer are
"insured loans" unless:
(1) the brochure, pamphlet, report, or advertising also:
(A) clearly states that the loans are insured by private
insurers; and
(B) lists the names of the private insurers; and
(2) the insurance on the real estate loans is written by an
insurer authorized to write that insurance in this state.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 3, eff. April 1, 2007.