Reinsuring private mortage insurance: Opportunities for noninterest income

Depository institutions continually seek ways to supplement interest income. Noninterest income helps offset pressure on interest margins and provides diversification of revenue sources. Over the past several years, depository institutions have begun to participate in arrangements with private mortgage insurers in which a subsidiary of the institution reinsures a portion of the mortgage insurance written the primary insurer in connection with loans made by the depository institutions or their affiliates. Properly structured reinsurance arrangements provide a vehicle through which depository institutions may derive additional fee income through their normal lending operations. However, attention must be paid to the various supervisory policies that have been adopted by the bank regulatory agencies and the Real Estate Settlement Procedures Act issue to facilitate effective implementation of such programs. This article reviews some of the banking law and regulations applicable to the reinsurance arrangements of depository institutions.