Fannie Mae Won’t Buy Loans Insured by Ticor

The Federal National Mortgage Assn., one of the nation’s largest buyers and sellers of mortgage securities, said Friday that it will no longer buy mortgages insured by financially troubled Ticor Mortgage Insurance Co.

The decision by Fannie Mae is a blow to Los Angeles-based Ticor, already reeling from a potential $166-million loss on mortgages that it insured for an ailing real estate company in Virginia.

Officials at Ticor, the nation’s third-largest mortgage insurer, insisted that the mortgage market had anticipated Fannie Mae’s decision and adjusted for its consequences as early as 10 days ago. But many mortgage industry executives say the action reduces the marketability of debt insured by Ticor and further undermines the securities’ market value.

Fannie Mae took the radical step in reaction to Ticor’s announcement Thursday that it will sell no new mortgage insurance until it knows the actual extent of its liability. Fannie Mae officials said Ticor’s ability to meet potential claim obligations is too risky without revenue from new business.

William J. Fitzpatrick, chairman and chief executive of Ticor Mortgage, said he “can understand” concern over the company’s ability to pay its claims. “But right now I can see nothing that would prevent us from doing so,” he said.

Because of Ticor’s decision to suspend the writing of new policies, Fitzpatrick said, the mortgage company may close several of its 22 branches nationwide and lay off “a few” of the 325 people that it employs. “But we’ll be able to transfer most of those people,” he said. “And the company itself will continue on under any circumstances.”

Ticor has potential claim obligations of $4.4 billion for mortgages whose face value is about $16 billion. Those figures include the $166 million that Ticor might have to pay on defaulted mortgages originating with Equity Programs Investment Corp. (EPIC) of Falls Church, Va.

EPIC, a subsidiary of Community Savings & Loan Assn. of Bethesda, Md., announced last month that it could not make payments on $1 billion in mortgages and mortgage-backed securities. Ticor says it has surplus cash of $197 million from which to pay claims, including those stemming from EPIC.

Mortgage industry executives said Fannie Mae’s decision not to handle Ticor-backed debt will likely spur Moody’s Investors Service and Standard & Poor’s to lower their Ticor Mortgage investment ratings. The downgrading has been expected.

Because the price of mortgages and mortgage-backed securities is set by the value of the underlying property and by the quality of the insurance against default, a lower rating for Ticor would increase the risk and lower the value of debt that it insures.

Debt Ratings Reviewed

Two weeks ago, Standard & Poor’s announced that it was reviewing its AA rating of Ticor; S&P;’s highest rating is AAA. The next day, Moody’s made a similar announcement regarding its current A-2 rating for Ticor; its top rating is A-3.

Fitzpatrick said Ticor Mortgage hopes to improve its cash position and resume writing new insurance by early next year.

But one Los Angeles savings and loan executive said, “Without Fannie Mae, even if (Ticor) would take on new business, who’s going to want their insurance? The answer is no one.”

On Thursday, Ticor split its mortgage insurance operations from its title-insurance division, spinning each into separate, wholly owned subsidiaries of the parent company, Ticor. The intent, Ticor officials said, was to prevent the financial troubles of Ticor Mortgage Insurance from jeopardizing the profitable title-insurance operations. At the same time, Ticor announced that, effective next Wednesday, it would stop making new mortgage insurance.