The California insurance commissioner asked a state court yesterday to order the liquidation of TMIC Insurance Co., which insured many of the mortgages of the bankrupt Equity Programs Investment Corp. real estate partnerships as well as thousands of other mortgages around the country.
The action followed a study by the commissioner's office that concluded that TMIC faces a shortfall of $254 million between expected claims and its resources. In addition, TMIC is obligated to pay $95 million as part of a workout agreement approved by the bankruptcy court for EPIC.
The commissioner, Roxani M. Gillespie, asked the Superior Court in Los Angeles to set a hearing on the liquidation plan April 6. A spokeswoman said the date was chosen to give major TMIC clients a chance to devise an alternative plan.
Among the hardest hit by TMIC's failure would be the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corp. (Freddie Mac), which bought mortgages insured by the firm.
Fannie Mae said about 1.5 percent of the mortgages it owns or has packaged and sold as mortgage-backed securities are insured by TMIC. That amounts to about $3 billion. It said that it believes its reserves are adequate to cover all potential losses, and that it is working to obtain new coverage for its loans.
"Our goal is to keep the mortgage insurance in force, though not necessarily with TMIC," a Fannie Mae spokesman said yesterday.
Freddie Mac does not keep its records in a way that allows it to determine readily what share of its loans are insured by TMIC, a spokeswoman said. She said the company is collecting that information now. As to an alternative to liquidation of TMIC, she said the major TMIC clients are "all talking to one another, but there is no formal workout committee. We are all trying to assess our own situations."
TMIC, once known as Ticor Mortgage Insurance Co., has coverage in force on about $16 billion in loans. Its exposure amounts to between $3 billion and $4 billion, since mortgage insurance is typically written to cover 20 percent to 25 percent of the loan amount. It is assumed that the lender can make up the balance by foreclosing on the property and selling it. TMIC's problems are not likely to have any effect on individual homeowners.
TMIC's troubles began in 1985 when real estate tax shelter partnerships sponsored by EPIC defaulted on about $1.4 billion worth of debt. The EPIC partnerships, more than 300 of them, bought more than 20,000 single-family houses, which they held as rental properties. Investors were to get tax writeoffs during the rental period and get their investment back plus a profit when the houses were sold.
Most of the houses were in Texas, however, and as that real estate market soured, sales proved impossible and rents did not cover costs. TMIC (then Ticor) was the largest insurer of the partnerships' mortgage loans.
The partnerships filed for bankruptcy protection from creditors and as part of the workout agreement TMIC was to pay the difference between rental income and costs on the EPIC houses while efforts were made to sell them.
TMIC's troubles continued to worsen, and in 1986 California regulators put the company into conservatorship. As part of that, TMIC was forbidden to write new insurance. However, as mortgage rates declined, homeowners refinanced the loans, lenders took their business elsewhere and TMIC's premium revenue fell as did the quality of its remaining insurance portfolio.
Last month Commissioner Gillespie forbade TMIC to make any claims payments, a moved that resulted in placing 6,600 EPIC houses in default under terms of the bankruptcy plan. Deeds on those houses have been turned over to the lenders.
Washington Post special correspondent Matt Lait contributed to this report