All valid claims under Triad Guaranty Inc.'s insurance policies will be paid 60% in cash and 40% by the creation of a deferred payment obligation (DPO), effective June 1, according to a corrective order issued by the Illinois director of insurance.
The DPO will be represented by a separate entry in Triad's financial statements and will accrue a carrying charge based on the investment yield earned by Triad's investment portfolio. Payments of the carrying charge and the DPO will be subject to Triad's future financial performance and will require the approval of the Illinois director.
‘Continuing volatility in the housing and mortgage markets, a high incidence of fraud and noncompliance with underwriting programs in the loan origination process, as well as worsening conditions in the overall economy, make it very difficult to forecast Triad's future financial position and claims," says the company's president and CEO, Ken Jones. "Government-led initiatives, including the loan modification and refinancing initiatives announced this month by Fannie Mae and Freddie Mac, are unprecedented in scope and could have a significant, stabilizing impact on the key variables that typically drive the level of our future premiums and losses."
Jones calls the company's claims-paying resources "substantial," totaling $2 billion.
"Despite these resources, the uncertainty in the future direction of the economy and the decline in our capital have increased the possibility that Triad may not be able to meet all future obligations under its policies," he adds.
SOURCE: Triad Guaranty