Financed Mortgage Insurance

Mortgage insurance financed

Skip to Why do I need mortgage insurance? - In France, mortgage insurance is required by law. Mortgage information on French mortgages (pret immobilier). The securitisation of mortgages and credit card receipts has already taken place.

Transnational funding by insurance undertakings

Insurance firms have been providing credit to fund large property deals for several years. Low interest rate levels currently being achieved in Germany for the funding of property deals are causing insurance undertakings to fund property deals abroad with higher spreads than those currently available on the domestic markets.

In many cases, the loan is financed by resources obtained by the insurance company in question from endowment insurance contracts, for which the insurance company has usually agreed to pay a guarantee to the policyholder. It is therefore indispensable for the property finance of insurance undertakings to achieve yields that at least correspond to the guarantee interest levels of endowment policy.

As with the funding of Germany deals, cross-border property finance must also conform to the statutory requirements for insurance undertakings, in particular the Insurance Supervision Act, the Investment Ordinance and the announcements of the Federal Financial Supervisory Authority (BaFin). Financial operations involving insurance undertakings from other states must also conform to the general conditions of the respective jurisdiction.

It is important to check at an early juncture whether insurance undertakings which do not possess a bank license are entitled to issue property credits in the respective overseas courts for this kind of transactions. Certain jurisdictional arrangements may make the provision of a loan subject to certain conditions, such as notification to NRAs or requesting a Fiscal ID.

In some countries, for example, insurance undertakings may not be permitted to act as "original lenders", although they may be permitted to purchase credit initially provided by a banking institution. According to Ger-man regulatory legislation, insurance undertakings are authorised to extend credit in accordance with documents subject to international legislation; however, the special regulations of Ger-man regulatory legislation must be heeded.

As a rule, this makes it indispensable that each of the participating insurance undertakings grants a discrete credit, transfers its credit free and accelerates its credit as soon as certain'material' occurrences of failure occur. Therefore, the speeding up of a credit line provided by an insurance undertaking in such situations should not be a matter for the lender's controlling vote.

The provisions of Article 126 of the Association of Pfandbrief Banks of 17 December 2012 - according to which under certain conditions mortgage lenders may agree to majorities under certain conditions - do not correspondingly affect insurance undertakings. Mortgage loans are of great importance in property finance. For property finance with insurance undertakings, an individually first-rate mortgage must be provided for the benefit of each insurance undertaking.

If one of the finance houses is a Deutsche Bundesbank that maintains a funding registry, it is possible as an alternative to establish a mortgage in favor of that Deutsche Bundesbank to cover all credits. This presupposes, however, that the respective banks holds the mortgage as collateral trustees and that the entitlements to assignment of the mortgage of the various insurance undertakings are recorded in the Funding Registry.

This latter is a viable alternative if the overseas jurisdictions in which the asset to be financed is situated do not have two or more senior mortgage facilities and if there are no other legislative options that would meet the regulatory/supervisory needs. Due to the connection between the mortgage securities and the loans receivable (accessoriness), it may be necessary in some jurisdictions for all loans receivable to be kept with the respective banks, especially if simultaneous borrowing patterns can lead to fiscal problems.

Insurance cross-border funding is more complicated than domestic funding. It is also recommended to consult the Guarantor for the security assets of the participating insurance undertakings before signature of the appropriate documents so that any doubts of the guarantor assets guarantor can be taken into consideration when drawing up the credit documents.

When Solvency II comes into force in 2016, the regulation governing insurance company funding will be changed. It is expected that Solvency II will implement a number of changes that will make it more convenient for insurance undertakings to provide credit to finance property deals.

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