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Mr. James C. Miller, president of Commonwealth Mortgage
Assurance Co. (CMAC), and his staff met on several
occasions with representatives of EPIC's management to
discuss EPIC's business and the risks that CMAC would face
in writing mortgage insurance on mortgage loans issued by
EPIC partnerships. A memorandum dated February 24, 1984,
written by Mr. Miller before any mortgage insurance was
written describes EPIC's business and the risks presented
by that business. The memorandum describes the risks as
follows:
Risks
They described their program as unique, and it
is certainly entirely different from the normal
owner-occupied situation. To hear them tell it,
there is virtually no chance of borrower default.
Their track record of selling to high-income
investors and obtaining the note payments from
them has been very good to date.
The next major risk is that the real estate
projects themselves do not work out. Deprived
of rental income, the pool's cash flow would be
negatively impacted. EPIC minimizes this risk
by wide diversification of the properties--
geographically, price and style. They showed
us one sample pool in which the diversification
seemed to be excellent.
There's always the possibility that the general
partner, EPIC, will fail; the most likely form
of failure would be a series of projects that
did not rent out adequately. We can review their
project plans to verify that they have adequate
margins built in to minimize this risk. We can
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