33-12-307. Mortgage loans — income producing real estate — real estate for accommodation of business — quantitative limitations. (1) (a) Subject to the limitations of 33-12-302, an insurer may acquire obligations secured by mortgages on real estate situated within a domestic jurisdiction, either directly or indirectly through limited partnership interests and general partnership interests not otherwise prohibited by 33-12-104(4), joint ventures, stock of an investment subsidiary, membership interests in a limited liability company, trust certificates, or other similar instruments. However, a mortgage loan that is secured by other than a first lien may not be acquired unless the insurer is the holder of the first lien. The obligations held by the insurer and any obligations with an equal lien priority may not, at the time of acquisition of the obligation, exceed:

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Terms Used In Montana Code 33-12-307

  • Acceptable private mortgage insurance: means insurance written by a private insurer protecting a mortgage lender against loss occasioned by a mortgage loan default and issued by a licensed mortgage insurance company, with an SVO 1 designation or a rating issued by a nationally recognized statistical rating organization equivalent to an SVO 1 designation, that covers losses up to an 80% loan-to-value ratio. See Montana Code 33-12-102
  • Accident and health insurance: means insurance protection that provides payment of benefits for covered sickness or accidental injury, excluding credit insurance, disability insurance, accidental death and dismemberment insurance, and long-term care insurance. See Montana Code 33-12-102
  • Admitted assets: means , subject to subsection (5)(b), assets determined in accordance with the requirements of 33-2-501. See Montana Code 33-12-102
  • Amortization: Paying off a loan by regular installments.
  • Assets: (1) The property comprising the estate of a deceased person, or (2) the property in a trust account.
  • directly: when used in connection with an obligation, means that the designated obligor is primarily liable on the instrument representing the obligation. See Montana Code 33-12-102
  • Domestic jurisdiction: means the United States, any state, Canada, any province of Canada, or any political subdivision of a state or province. See Montana Code 33-12-102
  • Escrow: Money given to a third party to be held for payment until certain conditions are met.
  • Fair market value: The price at which an asset would change hands in a transaction between a willing, informed buyer and a willing, informed seller.
  • Income: means , as to a security, interest, accrual of discount, dividends, or other distributions, such as rights, tax or assessment credits, warrants, and distributions in kind. See Montana Code 33-12-102
  • Interest rate: The amount paid by a borrower to a lender in exchange for the use of the lender's money for a certain period of time. Interest is paid on loans or on debt instruments, such as notes or bonds, either at regular intervals or as part of a lump sum payment when the issue matures. Source: OCC
  • Investment subsidiary: means a subsidiary of an insurer engaged or organized to engage exclusively in the ownership and management of assets authorized as investments for the insurer if each subsidiary agrees to limit its investment in any asset so that its investments will not cause the amount of the total investment of the insurer to exceed any of the investment limitations or avoid any other provisions of this chapter applicable to the insurer. See Montana Code 33-12-102
  • Jurisdiction: (1) The legal authority of a court to hear and decide a case. Concurrent jurisdiction exists when two courts have simultaneous responsibility for the same case. (2) The geographic area over which the court has authority to decide cases.
  • Lease: A contract transferring the use of property or occupancy of land, space, structures, or equipment in consideration of a payment (e.g., rent). Source: OCC
  • Lien: A claim against real or personal property in satisfaction of a debt.
  • Limited liability company: means a business organization, excluding partnerships and ordinary business corporations, organized or operating under the laws of the United States or any state that limits the personal liability of investors to the equity investment of the investor in the business entity. See Montana Code 33-12-102
  • Market value: means :

    (a)as to cash and letters of credit, the amounts of cash or a letter of credit; and

    (b)as to a security, as of any date, the price for the security on that date obtained from a generally recognized source or the most recent quotation from a generally recognized source or, to the extent that a generally recognized source does not exist, the price for the security as determined in good faith by the parties to a transaction, plus accrued but unpaid income on a security to the extent not included in the price as of that date. See Montana Code 33-12-102

  • Mortgage: The written agreement pledging property to a creditor as collateral for a loan.
  • Mortgage loan: A loan made by a lender to a borrower for the financing of real property. Source: OCC
  • Mortgage loan: means an obligation secured by a mortgage, deed of trust, trust deed, or other consensual lien on real estate. See Montana Code 33-12-102
  • NAIC: means the national association of insurance commissioners. See Montana Code 33-12-102
  • Obligation: An order placed, contract awarded, service received, or similar transaction during a given period that will require payments during the same or a future period.
  • Obligation: means a bond, note, debenture, trust certificate including an equipment certificate, production payment, negotiable bank certificate of deposit, bankers' acceptance, credit tenant loan, loan secured by financing net leases, and other evidence of indebtedness for the payment of money (or participations, certificates, or other evidences of an interest in any of the foregoing), whether constituting a general obligation of the issuer or payable only out of certain revenue or certain funds pledged or otherwise dedicated for payment. See Montana Code 33-12-102
  • Partnership: A voluntary contract between two or more persons to pool some or all of their assets into a business, with the agreement that there will be a proportional sharing of profits and losses.
  • Real estate: means :

    (i)real property;

    (ii)interests in real property, such as leaseholds, minerals, oil, and gas, that have not been separated from the underlying fee interest;

    (iii)improvements and fixtures located on or in real property; and

    (iv)the seller's equity in a contract providing for a deed of real estate. See Montana Code 33-12-102

  • Recourse: An arrangement in which a bank retains, in form or in substance, any credit risk directly or indirectly associated with an asset it has sold (in accordance with generally accepted accounting principles) that exceeds a pro rata share of the bank's claim on the asset. If a bank has no claim on an asset it has sold, then the retention of any credit risk is recourse. Source: FDIC
  • Secured location: means the contiguous real estate owned by one person. See Montana Code 33-12-102
  • SVO: means the securities valuation office of the NAIC or any successor office established by the NAIC. See Montana Code 33-12-102

(i)90% of the fair market value of the real estate if the mortgage loan is secured by a purchase money mortgage or similar security received by the insurer upon disposition of the real estate;

(ii)80% of the fair market value of the real estate if the mortgage loan requires immediate scheduled payment in periodic installments of principal and interest, has an amortization period of 30 years or less, and has periodic payments made no less frequently than annually. Each periodic payment must be sufficient to ensure that at all times the outstanding principal balance of the mortgage loan is not greater than the outstanding principal balance that would be outstanding under a mortgage loan with the same original principal balance, with the same interest rate, and requiring equal payments of principal and interest with the same frequency over the same amortization period. Mortgage loans permitted under this subsection (1)(b) are permitted notwithstanding the fact that they provide for a payment of the principal balance prior to the end of the period of amortization of the loan. For residential mortgage loans, the 80% limitation may be increased to 97% if acceptable private mortgage insurance has been obtained.

(iii)75% of the fair market value of the real estate for mortgage loans that do not meet the requirements of subsections (1)(a)(i) or (1)(a)(ii).

(b)For purposes of subsection (1)(a), the amount of an obligation required to be included in the calculation of the loan-to-value ratio may be reduced to the extent the obligation is insured by the federal housing administration, guaranteed by the administrator of veterans affairs, or insured or guaranteed by their successors.

(c)A mortgage loan that is held by an insurer under 33-12-103(6) or acquired under this section and that is restructured in a manner that meets the requirements of a restructured mortgage loan in accordance with the NAIC Accounting Practices and Procedures Manual or a successor publication continues to qualify as a mortgage loan under this chapter.

(d)Subject to the limitations of 33-12-302, credit lease transactions that do not qualify for investment under 33-12-303 and that have the following characteristics are exempt from the provisions of subsection (1)(a):

(i)the loan amortizes over the initial fixed lease term in at least an amount sufficient so that the loan balance at the end of the lease term does not exceed the original appraised value of the real estate;

(ii)the lease payments cover or exceed the total debt service over the life of the loan;

(iii)a tenant or its affiliated entity with rated credit instruments that have an SVO 1 or 2 designation or a comparable rating from a nationally recognized statistical rating organization recognized by the SVO has a full faith and credit obligation to make the lease payments;

(iv)the insurer holds or is the beneficial holder of a first lien mortgage on the real estate;

(v)the expenses of the real estate are passed through to the tenant, excluding exterior, structural, parking, and heating, ventilation, and air-conditioning replacement expenses, unless annual escrow contributions, from cash flows derived from the lease payments, cover the expense shortfall; and

(vi)there is a perfected assignment of the rents due pursuant to the lease to or for the benefit of the insurer.

(2)(a) An insurer may acquire, manage, and dispose of real estate situated in a domestic jurisdiction, either directly or indirectly through limited partnership interests and general partnership interests not otherwise prohibited by 33-12-104(4), joint ventures, stock of an investment subsidiary, membership interests in a limited liability company, trust certificates, or other similar instruments. The real estate must be income-producing or intended for improvement or development for investment purposes under an existing program, in which case the real estate must be considered to be income-producing.

(b)The real estate may be subject to mortgages, liens, or other encumbrances, the amount of which must, to the extent that the obligations secured by the mortgages, liens, or encumbrances are without recourse to the insurer, be deducted from the amount of the investment of the insurer in the real estate for purposes of determining compliance with subsections (4)(b) and (4)(c).

(3)(a) An insurer may acquire, manage, and dispose of real estate for the convenient accommodation of the insurer’s or the insurer’s affiliates’ business operations, including home office, branch office, and field office operations.

(b)Real estate acquired under this subsection (3) may include excess space for rent to others if the excess space, valued at its fair market value, would otherwise be a permitted investment under subsection (2) and is so qualified by the insurer.

(c)The real estate acquired under this subsection (3) may be subject to one or more mortgages, liens, or other encumbrances, the amount of which must, to the extent that the obligations secured by the mortgages, liens, or encumbrances are without recourse to the insurer, be deducted from the amount of the investment of the insurer in the real estate for purposes of determining compliance with subsection (4)(d).

(d)For purposes of this subsection (3), business operations may not include that portion of real estate used for the direct provision of health care services by an insurer whose insurance premiums and required statutory reserves for accident and health insurance constitute at least 95% of total premium considerations or total statutory required reserves, respectively. An insurer may acquire real estate used for these purposes under subsection (2).

(4)(a) An insurer may not acquire an investment under subsection (1) if, as a result of and after giving effect to the investment, the aggregate amount of all investments then held by the insurer under subsection (1) would exceed:

(i)1% of its admitted assets in mortgage loans covering any one secured location;

(ii)0.25% of its admitted assets in construction loans covering any one secured location; or

(iii)1% of its admitted assets in construction loans in the aggregate.

(b)An insurer may not acquire an investment under subsection (2) if, as a result of and after giving effect to the investment and any outstanding guarantees made by the insurer in connection with the investment, the aggregate amount of investments then held by the insurer under subsection (2) plus the guarantees then outstanding would exceed:

(i)1% of its admitted assets in any one parcel or group of contiguous parcels of real estate, except that this limitation does not apply to that portion of real estate used for the direct provision of health care services by an insurer whose insurance premiums and required statutory reserves for accident and health insurance constitute at least 95% of total premium considerations or total statutory required reserves, respectively, such as hospitals, medical clinics, medical professional buildings, or other health facilities used for the purpose of providing health services; or

(ii)the lesser of 10% of its admitted assets or 40% of its surplus as regards policyholders in the aggregate, except for an insurer whose insurance premiums and required statutory reserves for accident and health insurance constitute at least 95% of total premium considerations or total statutory required reserves, respectively. This limitation must be increased to 15% of its admitted assets in the aggregate.

(c)An insurer may not acquire an investment under subsection (1) or (2) if, as a result of and after giving effect to the investment and any outstanding guarantees it has made in connection with the investment, the aggregate amount of all investments then held by the insurer under subsection (1) or (2) plus the guarantees then outstanding would exceed 25% of its admitted assets.

(d)The limitations of 33-12-302 do not apply to an insurer’s acquisition of real estate under subsection (3). An insurer may not acquire real estate under subsection (3) if, as a result of and after giving effect to the acquisition, the aggregate amount of all real estate then held by the insurer under subsection (3) would exceed 10% of its admitted assets. With the permission of the commissioner, additional amounts of real estate may be acquired under subsection (3).

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