Mortgage Insurers Pressure Lenders to Repurchase Bad Policies

by devteam December 4th, 2009 | Share

From Moody's Investor Service….

“Monoline Insurers Push Back on Mortgage Claims”

Monoline financial guarantors and mortgage insurers are planning to shrink losses from defaulted mortgages through loan put-backs to originators and through claims rescissions and denials, Moody's Investors Service points out in a new report. To the extent that these claim mitigation strategies prove successful, the rating agency states, their credit profiles could improve.

Moody's estimates that mortgage insurers have rescinded approximately $6 billion of submitted claims since January 2008 and could potentially rescind an additional $2 to $4 billion of claims in the next few years. Additionally, the financial guarantors have recorded more than $4 billion of credits for loan put-backs, suggesting that the claim mitigation efforts of these firms may have a knock-on credit impact on mortgage originators and other affected mortgage-insurance beneficiaries.

However, Moody's Vice President James Eck cautions that “the degree of success that these claim mitigation strategies can achieve remains uncertain, and they will be subject to potentially protracted negotiations — and, in some cases, litigation — with mortgage originators and bank lenders. Ultimate recoveries by these companies could be materially different than current estimates.”

The analyst adds that the implications for monoline insurance policyholders will vary significantly, based on whether they are facing a financial guarantor, whose insurance policies generally require them to pay first and dispute claims later, or a mortgage insurer, which regularly rescind coverage for underwriting irregularities.

From Reuters News…

U.S. mortgage insurers are likely to reject as much as $4 billion in claims by lenders over the next few years as they get more aggressive in pushing responsibility for bad loans to originators, Moody's Investors Service said in a report.

Facing steep losses, the insurers are “increasingly confident” they can hold banks accountable for the loans,   James Eck and other Moody's analysts said in the report.

The insurers have already rescinded about $6 billion of claims since January, following reviews asserting lenders failed on due diligence in underwriting during the peak years of the housing boom, Moody's said. Such loans helped trigger the worst housing crisis since the 1930s, and their fallout in defaults and foreclosures persists.

Denied claims, where successful, may result in a significant transfer of losses from insurers to the banks, the report said. Many banks have already provisioned for such losses, however, limiting their exposure, it said.

Mortgage insurers guarantee portions of many loans that represent more than 80 percent of a home's value. MGIC Investment Corp , the largest U.S. mortgage insurer, has posted nine straight quarterly losses as defaults rose.

PMI Group Inc and Radian Group Inc are also large U.S. mortgage insurers.

Government-controlled mortgage finance giants Fannie Mae and Freddie Mac have also increased their repurchase requests, Moody's said. Servicers of Freddie Mac funded loans bought back $2.7 billion in mortgages in the first three quarters of 2009, compared with $1.2 billion for the same period a year ago.


This is bad news for lenders who are already under pressure from Fannie Mae and Freddie Mac to repurchase/buyback loans. The Collingwood Group EXPLAINS HERE

All Content Copyright © 2003 – 2009 Brown House Media, Inc. All Rights Reserved.nReproduction in any form without permission of is prohibited.

About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

See all blogs


Leave a Comment

Leave a Reply

Latest Articles

Real Estate Investors Skip Paying Loans While Raising Billions

By John Gittelsohn August 24, 2020, 4:00 AM PDT Some of the largest real estate investors are walking away from Read More...

Late-Stage Delinquencies are Surging

Aug 21 2020, 11:59AM Like the report from Black Knight earlier today, the second quarter National Delinquency Survey from the Read More...

Published by the Federal Reserve Bank of San Francisco

It was recently published by the Federal Reserve Bank of San Francisco, which is about as official as you can Read More...