Court Declares B of A Insurer to Be Insolvent

A Montana insurance company that had written insurance covering millions of dollars worth of loans marketed in what Bank of America claims is a major mortgage securities fraud was declared insolvent Monday by the Orange County Superior Court.

The California Insurance Commission was named conservator for Glacier General Assurance Co. of Missoula, Mont., which had underwritten $89 million of the $95 million in loan losses sustained by Bank of America. In all, state insurance officials said, Glacier underwrote about $200 million worth of mortgage guarantee bonds, a form of insurance obtained by banks and other investors who buy pools of mortgage loans for investment.

The state agency’s court petition claims that Glacier’s liabilities exceed its assets by $37.2 million.

Take Possession of Assets

The court order obtained Monday by the insurance department enables the state to take possession of all Glacier assets in California; prohibits Glacier and its officers, directors, agents and employees from transacting any of the company’s business in California, and bars suits against Glacier or its conservator by the company’s creditors and insurance claimants.

Glacier officials could not be reached Monday evening for comment. The company’s California headquarters are located in Tustin.

San Francisco-based Bank of America, which sustained the losses in acting as trustee and escrow agent on the mortgage securities, had said earlier that it was considering legal action against Glacier. However, a spokesman said Monday night that the state’s action, which bars suits from being filed against Glacier in California, would not have “any immediate impact” on the bank.

“Recoveries from Glacier were not anticipated in the $95-million (loss) reserve in the short term,” he said.

In addition to the $89 million in so-called guarantee bonds that Glacier had issued on the mortgage loans in the Bank of America case, the company also backed an $18-million pool of mortgage securities, also in default, that are held by four East Coast savings and loan associations. The Eastern thrifts used Wells Fargo & Co., the San Francisco-based parent of Wells Fargo Bank, as trustee in their purchase of the loans; the loans went into default in January with $9.4 million still owed.

Most of the loans in question were packaged for resale on the secondary investment market by National Mortgage Equity Corp. of Palos Verdes Estates, which itself purchased at least $50 million in loans from West Pac Corp. of Orange.

But a suit by Texas insurance regulators has alleged that West Pac and National Mortgage Equity were working together in packaging and reselling the loans.

Bank of America last Friday filed suit in U.S. District Court in Los Angeles against Rogers, West Pac, National Mortgage and a Chicago law firm, claiming that they defrauded the bank of $95 million in an elaborate mortgage securities scheme.

A Wells Fargo spokeswoman said that bank would not be affected by Glacier’s insolvency because it has no financial liability for the $9.4 million still owed the East Coast thrifts.

Although Wells Fargo reportedly asked Glacier several weeks ago to pay the thrifts the $9.4 million, the spokeswoman said Monday that “our dealings with Glacier in the past few weeks have been as a conduit in our role as trustee. We have conveyed information from Glacier to the four thrifts.” She said Wells officials believe that Glacier had offered a settlement to the thrifts but that all four had refused the offer.

Last month, the state Insurance Commissioner’s office permanently barred Glacier from doing business in the state because it was unable to make good on its policies.

In its petition Monday, the commissioner’s office said preliminary findings of a joint audit of Glacier by the California and Montana insurance departments show that the company overstated its assets by $26.2 million and understated its liabilities by “at least” $36 million in its Dec. 31, 1984, financial statement.

The findings, the petition states, show that Glacier actually has liabilities of $121.1 million, assets of $84.9 million and a $36.2-million deficit. In addition, California required Glacier to have at least $1 million in unimpaired capital in order to do business in the state, and that $1 million, added to the $36.2-million deficit, brings the total figure to $37.2 million, according to the court documents.