Posted by LJ on 8/10/07 9:57pm
Msg #205022

Can anyone explain "Reinsurance" to me?

Borrower has to pay PMI. There is a Notice which states:

An affiliate of ****, OS Reinsurance Co has a contract with each Mortgage Insurer to reinsure a portion of the mortgage insurance for **** borrowers. Under this agreement, the Reinsurance Co assumes a portion of the risk associated with the Mortgage Insurance. In exchange for its assumption of the risk, the Reinsurance Co may receive a percentage of the total Mortgage Insurance premiums paid to your Mortgage insurer. Your loan may or may not be included in such a reinsurance arrangement. The reinsurance will not increase the Mortgage Insurance premiums you pay.
If you do not want your loan to be reinsured as described above, complete the response at the bottom of this document and send it to **** the address given so that **** receives your notice within 5 days after the date you sign your loan documents. If you decline the reinsurance, you will still have the required mortgage insurance coverage for your loan without any change in the premium or in any other loan terms.

Sorry so long, but I couldn't explain it without typing it word for word.
In 2 years I have never seen this document before on PMI. The borrower and I read it over and over. He came to the conclusion that it didn't make a difference to him (premium wise) if he signed it or not. So, he did.

Thanks.

Reply by AngelinaAZ on 8/10/07 10:24pm
Msg #205026

I don't know enough about it to explain in detail... but it has to do with the lenders (usually the big ones) that have the ability to assume risk if default happens. They assume some of the MI risk and therefore... take some of the MI money. Essentially they split risk and money with the insurance company.

All I know is that the lender has to be specially approved to do it.

Reply by Dennis D Broadbooks on 8/11/07 8:32am
Msg #205048

It's Called "Spreading the Risk"...

...among insurance carriers. For a portion of the mortgage insurance premium paid by the borrower a secondary insurance company to the primary mortgage insurance carrier will step in to assume part of the risk involved & share in claim payment if there's a covered loss. I don't believe it has anything to do with the lender assuming part of the risk. JMHO & should not be construed as legal OR insurance advice.

Reply by LJ on 8/11/07 1:22pm
Msg #205063

Or: Another way of getting a portion of the MI premiums

Either way - Spreading the Risk and getting a portion of the MI premiums - the re-insurance co could make a hefty profit or lose a hefty amount if the borrower defaults.

In this particular case the borrowers PMI is much, much higher than I have previously seen. I did not say anything about this as this is not my place. Simply pointed out the amount. This tells me that there could be a risk factor in play. Could be why another company is stepping in and assuming part of the risk. On the flip side if the borrower does NOT default, this company stands to make a hefty profit.
No different than any other insurance we pay for and never use. I don't know about the rest of you, but sometimes I feel I am working to pay insurance. I get sick of paying it and never using it. Part of the reason my husband and I sold our other business is because the insurance was eating us alive. We had employees and we even had to have "sexual harrassment" insurance in case either my husband or I were accused of sexually harassing them. Makes me so mad because I was sexually harassed by an old boss 30 years ago. He would not leave me alone and I had to quit because of it. Nowadays, he wouldn't get by with it. It wasn't even heard of suing for that back then. Sorry, I got on a rampage. Thanks for letting me vent.
I understand the re-insurance now. Thanks