Oregon Legislature Passes Bill Allowing Behind the Curtain REDUCTION in Risk Capital Requirements for Private Mortage Insurers.

Sometimes you just have to wonder.....

The Oregon Senate passed yesterday a bill that had already passed the House and will now be on its way to the Governor for signature. HB 3654A essentially allows the Director of the Oregon Department of Consumer and Business Services to unilaterally water down private mortgage insurance company capital, reserve and surplus requirements to a level BELOW the currently required 25 to 1 ratio. (A House amendment to the original bill permits this to happen WITHOUT any administrative rule making).

The logic of the REDUCTION in ratios is explained in the Oregon House legislative summary HERE.

... while current economic conditions demonstrate the need for private mortgage insurance (PMI), these same conditions are driving higher claims rates and in some states, are putting companies at risk of not being able to write new business although they are sufficiently capitalized to meet all of their policyholders’ claim obligations. The statutory restriction prevents flexibility needed for regulatory entities to adjust risk-to-capital ratio requirements to meet market needs.

While the bill passed unanimously in the House, 6 Senators voted against it:Ferrioli, Girod, Kruse, Shields, Whitsett, Winters.

Editorial Comment: At a time when greater transparency and increased capital requirements for financial firms are the order of the day, the Oregon Legislature caved in favor of behind the scenes "flexibility" and reduced capital requirements. (The House argument for "market needs" was the same excuse made for sub prime loan products).

Originally created and posted on the Oregon Housing Blog.