Ticor Unit Gets OK on Bond Insurance
The mortgage insurance subsidiary of Los Angeles-based Ticor Inc. has been given permission to honor previous commitments for bond liability insurance on more than $300 million worth of apartment development projects around the country, California Insurance Commissioner Bruce Bunner announced late Tuesday.
However, in a statement, Bunner cautioned that he may rescind the permission “at any time, depending upon his assessment of the financial condition” of TMIC Insurance Co., which this month changed its name from Ticor Mortgage Insurance.
Bunner’s decision is good news for the several dozen builders who need the mortgage insurance from TMIC to qualify for the inexpensive bond money that is being used to finance their apartment developments, most of which are located in California and Arizona.
TMIC is facing possible insolvency from the fallout at Equity Programs Investment Co., a real estate investment firm that defaulted on $1.4 billion in mortgage loans last August. TMIC faces possible losses of up to $166 million in connection with that default, but the mortgage-insurance commitments were made before the Equity Programs problems became known.
According to the terms of the revenue bond offering, the mortgage money cannot be turned over to the developers until the previously guaranteed insurance is put into effect. The bonds were issued in the past few years on the assumption that the mortgage insurance would be available from Ticor Mortgage.
The good news for the developers, however, is not as welcome to holders of the bonds. TMIC’s problems raise the question of whether the insurance on the bonds is anything more than a legal technicality. The bonds are a risky investment and their resale price is accordingly reduced.
Even if none of the builders defaults and bondholders collect the full value of the bonds at maturity, the investors get what amounts to an illiquid investment with a very depressed value.
