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or issue any policy of mortgage insurance, within this state without having at least two hundred and fifty thousand dollars in capital stock fully paid in, in cash; nor until after having obtained from the insurance commissioner his certificate that such company has complied with the laws of this state applicable thereto and is duly authorized to do business as a mortgage insurance company.

No mortgage insurance company shall guarantee the payment of any security except the same be a first lien upon a marketable title in fee to the property covered thereby. No mortgage insurance company shall issue any policy of mortgage insurance guaranteeing the payment of any portion of any security exceeding fifty percentum of the market value of the real estate with improvements covered by the same. No mortgage insurance company shall hav

ne outstanding policies of mortgage insurance guaranteeing the payment of securities the aggregate amount of the unpaid principal of which exceeds twenty times the amount of its paid up capital. The making and issuing of policies of mortgage insurance under this act by mortgage insurance companies must not be construed to be the creation of debt within the meaning of the phrase "create any debts" in section three hundred nine of the Civil Code, nor of indebtedness within the meaning of the phrase "such capital stock cannot be diminished to an amount less than the indebtedness of the corporation" in section three hundred fifty-nine of the Civil Code, except that no mortgage insurance company shall reduce its capital stock to an amount less than is required by this act to be maintained by such mortgage insurance company, or less than the indebtedness of such mortgage insurance company other than such policies of mortgage insurance.

No mortgage insurance company shall invest in, hold or own any of the capital stock of any other corporation, or make any loan, in whole or in part, on the security of capital stock of any other corporation; provided, that a mortgage insurance company may take in its own name as pledgee, in connection with any loan conforming to the provisions of subdivision five of section four hundred fifty-three ee, stock in a water or power corporation in cases where such stock represents the right to receive or obtain water or power for the irrigation or cultivation, or other beneficial use thereon, of the real estate covered by the loan, whether such right be appurtenant thereto or otherwise; and if such loan be used as a part of a security or of a group of securities taken as the basis for the issue of mortgage participation certificates, may assign such stock to a trust company as a part of the security or securities required to be assigned by the terms of section four hundred fifty-three ff. Said company may also hold, use, transfer or dispose of any such stock for the benefit and protection of such loans.

No loan shall be made by any mortgage insurance company directly or indirectly to any of its officers or directors.

A violation of any of the terms or provisions of this section shall not make any security or any policy of such company void or voidable, but any officer, director, agent or other employee of any mortgage insurance company who knowingly consents to any violation of any of the terms or provisions of this section shall be guilty of a misdemeanor. 1915—1539.

453dd. Every mortgage insurance company shall annually set apart a sum equal to ten percentum of its net earnings collected during the year, which sums shall be allowed to accumulate until a fund shall have been created equal in amount to twenty-five per centum of the paid up capital stock of such company. Such fund shall be maintained as a further security to the holders of policies of mortgage insurance issued by such company, and shall be known as the “surplus”; and if at any time such surplus shall be impaired by reason of a loss,

the amount by which it may be impaired shall be restored in the manner hereinabove provided for its accumulation. All additions to said surplus, whether made in fulfillment of the requirements of this section or voluntarily by the company, shall be and remain subject to the provisions of this law. Such company must not make any dividends except from profits remaining on hand after retaining unimpaired:

1. The entire capital stock. 2. The amount set apart as a surplus under the provisions of this

section.

3. A sum sufficient to pay all liabilities for expenses and taxes, and all losses reported or in course of settlement, without impairment of said surplus. 1915—1540.

453ee. A mortgage insurance company may invest its capital, surplus and accumulations in the purchase of, or loans upon, any of the obligations, specified in subdivisions one to six, inclusive of this section:

1. Bonds or interest-bearing notes or obligations of the United States or those for which the faith and credit of the United States are pledged for the payment of principal and interest.

2. Bonds of this state or those for which the faith and credit of the state of California are pledged for the payment of principal and interest and bonds of any other state in the United States, that has not, within five years next preceding such investment by such insurance company, defaulted in payment of any part of either principal or interest due upon any legally authorized bond issue.

3. Bonds or interest-bearing notes or obligations issued under authority of law by any county, municipality or school district in this state or in any other state or territory of the United States; provided that said county, municipality or school district or the state or territory in which it is located has not, within five years next preceding such investment by such insurance company, defaulted in payment of any part of either principal or interest due upon any legally authorized bond issue.

4. Bonds of a permanent road division in this state and any irrigation district bonds which the law may now or hereafter authorize as legal investments for insurance companies; provided, that the total amount of bonds issued by any such irrigation district does not exceed sixty per centum of the aggregate market value of the lands within such district, and of the water, water rights, canals, reservoirs, reservoir sites and irrigation works owned or to be acquired or constructed with the proceeds of any such bonds, by said district, such facts in reference to bonds of irrigation districts to be determined by a commission now or hereafter authorized by law to ascertain and report upon such facts.

5. Notes or bonds secured by first mortgage or deed of trust or other first lien upon real estate, improved or unimproved; provided that the principal so lent or the entire note or bond issue so secured shall not exceed fifty percentum of the market value of such real estate, or of such real estate with improvements; provided, also, in case said loan is made, or said note or bond issue created as or for a building loan on real estate, that at no time shall the principal so lent or the entire outstanding note or bond issue exceed fifty per centum of the market value of the real estate and the actual cost of the improvements thereon.

6. Securities guaranteed by a mortgage insurance company operating under the laws of the State of California, also mortgage participation certificates issued by any such company in accordance with the

provisions of this chapter, including securities guaranteed and mortgage participation certificates issued by the investing company. 1915 -1541.

453ff. Mortgage participation certificates, also securities guaranteed by policies of mortgage insurance issued in conformity with the provisions of this chapter shall be legal investments for all trust funds held by any executor, administrator, guardian, trustee or other person holding trust funds, also for the funds of insurance companies, banks, banking institutions and trust companies, and shall be accepted by the state of California, its officers and officials as securities comprising any part of any fund or deposit required by law to be made with the state of California, or any officer or official thereof, by any trust company or insurance company doing business in the state of California, and all premiums required to be paid according to the terms of any such mortgage participation certificate, or other policy of mortgage insurance, may be charged to or paid out of the income from the note or notes, bond or bonds covered thereby; provided that the foregoing provisions of this section, in so far as they refer to mortgage participation certificates, shall apply only to such mortgage participation certificates as evidence the ownership of shares or interests in, or participation in, securities which shall have been assigned to a trust company organized and doing business under the laws of and within this state and shall be held by such trust company for the common and equal benefit of the holders of all mortgage participation certificates issued or to be issued evidencing the ownership of shares or interests in, or participation in, any particular security or group of securities so assigned and such trust, and the administration thereof, shall at all times be and hereby is expressly made subject to the inspection, supervision and control of the superintendent of banks as fully and completely as if the same constituted a court trust under the provisions of the bank act; provided, also, that each such mortgage participation certificate must bear the certificate of such trust company to the effect that the aggregate amount of mortgage participation certificates then outstanding, including both the one being certified and all others based on the same security or group of securities, does not exceed the amount of the unpaid principal of the debt or debts evidenced by such particular security or group of securities; provided, also, that each security so assigned shall be accompanied by a copy of the appraisement and of the certificate of the directors filed or to be filed with the insurance commissioner as required by the provisions of this chapter; provided, also, that a copy of each such appraisement and accompanying certificate of the directors shall be promptly, upon the assignment of each such security, transmitted to the superintendent of banks, and that each such copy of appraisement so transmitted shall bear an indorsement or certificate executed by the trust company to which each such security is so assigned reciting and setting forth the amount of the unpaid principal named in the security which covers the property described in such appraisement; provided, also, that if any such mortgage participation certificates, or securities guaranteed by policies of mortgage insurance issued in conformity with the provisions of this chapter, are used as securities comprising any part of any fund or deposit required by law to be made with the state treasurer by a trust company, the securities so guaranteed or the ownership of, or participation in, which is evidenced by such participation certificates must constitute a first lien on improved and productive real estate in the state of California. such improved real estate being worth at least double the amount of such lien; and also that the real estate and improvements which are covered by the lien of any security so guaranteed or the ownership of, or participation in, which is evidenced by mortgage participation certificates which are so used shall be reappraised at least once every two years and in the manner in this chapter provided for appraisements, and a copy of each such reappraisement shall be filed with the trust company to which such security shall have been assigned and the original of each such reappraisement bearing the indorsement or certificate of such trust company as to the amount of the unpaid principal named in such security shall be filed with the superintendent of banks; provided, further, that the legality or validity of entire mortgage guaranties and mortgage participation certificates heretofore issued which fully conform to and comply with the law in force at date of issuance shall not be affected or impaired by the provisions of this chapter and such entire mortgage gauranties and mortgage participation certificates shall continue to be legal investments and recognized for all purposes to the extent and in the manner provided by the law in force at date of such issuance.

A mortgage insurance company which issues mortgage participation certificates in accordance with the provisions of this section may at any time and from time to time substitute for any security or securities comprising or constituting a part or parts of a group of securities, the ownership of, or participation in, which is evidenced in whole or in part by any such participation certificates, other securities similarly guaranteed by it and withdraw from the trust company the security or securities for which such substitution shall be made; pro

however that at all times the amount of the unpaid principal of the debts evidenced by the particular group of securities held by such trust company and affected by any such substitution shall not be less than the aggregate amount of the participation certificates theretofore issued then outstanding and evidencing the ownership of undivided or other partial shares or interests, or participation, in such group of securities; and provided, further, that the right of substitution hereinbefore provided and the exercise thereof shall not alter or affect the status of such participation certificates as legal investments for trust funds, insurance companies, banks, banking institutions and trust companies as hereinbefore provided, or as securities acceptable by the state of California, its officers and officials, as comprising or constituting any fund or depo quired by law to be made with the state of California, or any officer or official thereof, by any trust company or insurance company doing business in the state of California. 1915–1542.

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453gg. Every mortgage insurance company shall make a report in writing to the insurance commissioner, which report shall be made quarterly, and shall be verified by the oath of its president or vicepresident, and its secretary or treasurer or of any two of its principal officers. Such report shall contain a statement of each new policy of mortgage insurance issued by such company since the last preceding report, stating specifically whether such policy constitutes an entire mortgage guaranty or a mortgage participation certificate.

When such policy constitutes an entire mortgage guaranty, such report shall set forth separately the following facts regarding the security on which the policy is based, namely:

1. The aggregate amount of the unpaid principal indebtedness evidenced by such security.

2. A description of the property covered by such security.

3. Separately, the market value of the land and the market value of the improvements thereon, if any, as shown by an appraisement as provided for by the terms of this section, also the aggregate value of such land and improvements.

4. The book and page of the record of the mortgage or deed of trust which is a part of such security.

When such policy constitutes a mortgage participation certificate such report shall set forth, directly or by reference to a previous report, separately the following facts regarding the security or securities on which such participation certificate is based, namely:

1. The aggregate amount of unpaid principal indebtedness evidenced and secured by such security or securities, and, separately, the amount of the unpaid principal indebtedness evidenced and secured by each such security.

2. A description of the property covered by each such security.

3. Separately, the market value of the land and the market value of the improvements thereon, if any, as shown by an appraisement as provided for by the terms of this section, also the aggregate value of such land and improvements.

4. The book and page of the record of each mortgage and deed of trust which is part of such security or securities.

5. The aggregate amount of participation certificates issued, outstanding and based upon the particular security or group of securities on which the certificate so reported is based.

There shall be filed with such report an appraisement of each separate parcel of property mentioned in the report, an appraisement of which has not theretofore been made and filed in accordance with the provisions of this section, which appraisement shall be made by a person or corporation approved by the insurance commissioner and by the superintendent of banks. In such appraisement the market value of each parcel of land and of the improvements thereon, if any, also the aggregate value of such parcel of land and improvements shall be stated, together with a general statement of the character of such land and of the kind and condition of such improvements, if any.

Such appraisement shall be signed and verified by such appraiser, or by an officer of the corporation, making such appraisement, and shall be accompanied by a certificate signed and verified by at least three directors of such mortgage insurance company to the effect that in the opinion of the affiants and each of them such appraisement is correct, and that in their opinion the amount thereof does not exceed the market value of the property, and that the principal amount lent on the security of such property does not in their opinion exceed fifty percentum of the market value of such property, also to the effect that said company has in its possession or control evidences of title consisting of a full abstract of title, a full certificate or guaranty of title, or a policy of title insurance, showing that the mortgage or deed of trust securing such loan is a first lien upon a marketable title in fee to the property covered thereby.

In case of the neglect or failure of any such mortgage insurance company to make any such quarterly report as herein provided, such company shall forfeit to the state of California ten dollars per day for every day during which such neglect or failure continues; provided, however, that the insurance commissioner shall have authority to extend the time within which any such report may be filed for not exceeding a period of ten days. 1915—1544.

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