State Codes and Statutes

Statutes > Texas > Insurance-code > Title-12-other-coverage > 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.

State Codes and Statutes

Statutes > Texas > Insurance-code > Title-12-other-coverage > 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.


State Codes and Statutes

State Codes and Statutes

Statutes > Texas > Insurance-code > Title-12-other-coverage > 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.